Seagen
Annual Report 2021

Plain-text annual report

INSPIRED BY PATIENTS DRIVEN BY SCIENCE 20 21 ANNUAL R EPORT Seagen 2021 Highlights COLLABORATION WITH COLLABORATION WITH 4 Approved First- or Best-in-Class Medicines Reaching Patients Globally COLLABORATION WITH COLLABORATION WITH Net Product Sales of $1.4 Billion in 2021 Dollars in Millions $1,386 $1,001 38% growth $628 $477 2021 Total Revenues of $1.6 Billion* Advancing 17+ Programs across our approved products and pipeline targeting solid tumors and hematologic malignancies 2018 2019 2020 2021 No Debt On the Cover: Maggie, a member of our Quality Control team *Includes net product sales, royalty revenues and collaboration and license agreement revenues Dear Shareholders, 2021 was an exceptional year for Seagen, during which we achieved important business, regulatory and development milestones. Today, Seagen is a multi-prod- uct biotechnology company with an expanded infrastructure, a rich pipeline and multiple strategic partnerships. This allows us to better meet the needs of a wider range of people living with cancer around the world. We are focused on maximizing the potential of our approved portfolio through exceptional commercial execution and strategic partnerships, while robust clin- ical development programs are designed to support future label expansions. ADCETRIS® forms the founda- tion of our core business, and more than a decade after its first launch it has been approved in over 75 countries under our collaboration with Takeda. ADCETRIS is an antibody-drug conjugate (ADC) which is now a U.S. stan- dard of care treatment in frontline Hodgkin lymphoma and peripheral T-cell lymphoma (PTCL). Recent data from the ECHELON-1 phase 3 clinical trial demonstrated a statistically significant improvement in overall survival in advanced Hodgkin lymphoma patients treated with ADCETRIS in combination with chemotherapy, compared to those who received chemotherapy in the frontline set- ting. These groundbreaking results further demonstrate the therapeutic value of ADCETRIS and its importance for patients with this disease. PADCEV® is a first-in-class ADC that has become a U.S. standard of care for previously treated metastatic urothelial cancer. In 2021, PADCEV received regular U.S. approval, enabling us to promote to the impressive overall survival benefit. We and our partner Astellas also secured approv- als for PADCEV in Canada, Switzerland, Israel, and Japan and we are progressing regulatory submissions across the European Union, Asia-Pacific and the Americas. We are advancing a robust clinical development program with PADCEV as monotherapy and in combination with Keytruda® in earlier lines of therapy. Data from EV-103 Cohort K that is anticipated in the second half of 2022, along with results from the EV-103 trial, could poten- tially support U.S. FDA accelerated approval for first-line metastatic urothelial cancer in 2023. We are also explor- ing earlier stages of disease, including muscle-invasive and non-muscle invasive bladder cancer, which represent areas of significant unmet need across a broader patient population. Finally, we are conducting a basket trial eval- uating PADCEV in other Nectin-4-expressing solid tumors. TUKYSA® is a best-in-class HER2 tyrosine kinase inhibi- tor (TKI) with broad potential in HER2 positive cancers. In combination with trastuzumab and capecitabine, TUKYSA demonstrated an overall survival benefit versus placebo in HER2-positive metastatic breast cancer following first-line progression. Approved in 36 countries, we have launched TUKYSA commercially in multiple countries including the U.S., Germany, France, Switzerland, Austria and Canada. We are working towards potential additional European launches in 2022, and our strategic collaboration with Merck is intended to expand TUKYSA’s reach outside of the Americas and Europe. TUKYSA’s broad develop- ment program includes clinical trials in HER2-positive breast cancer, colorectal cancer, gastric cancer and other HER2-amplified or mutant tumors. Data from the phase 2 MOUNTAINEER trial expected in the second half of 2022 could potentially support U.S. FDA accelerated approval as a treatment for colorectal cancer in 2023. Seagen’s fourth approved product, TIVDAK®, is a tissue factor-targeted ADC for recurrent or metastatic cervical cancer patients. It represents an important new medi- cine in a disease that has historically been treated with drugs resulting in low objective response rates and poor outcomes. TIVDAK’s clinical development program is designed to support global regulatory applications and maximize its future potential in cervical cancer and other solid tumors. PAGE 1 S E A G E N 2 0 2 1 A N N U A L R E P O R T We continue to advance our deep and diverse pipeline as we look to bring additional medicines to market in the coming years. We believe our ADC leadership and R&D expertise in empowered antibodies provides us with a competitive advantage when it comes to expanding and progressing our pipeline. Last year, we in-licensed rights from RemeGen Co. Ltd. (RemeGen) to develop and com- mercialize the late-stage novel ADC disitamab vedotin outside of RemeGen’s territory of Asia, excluding Japan and Singapore. Disitamab vedotin utilizes a high-affinity HER2 antibody with enhanced internalization. We have planned an extensive clinical development program that prioritizes monotherapy and combination approaches in breast, bladder, gastric and other cancers. Turning to our earlier-stage pipeline work, we are advanc- ing several ADCs in the clinic with novel and validated targets. In addition, we have four programs that use our proprietary sugar-engineered antibody (SEA) technology. Overall, we are advancing more than 17 programs across our pipeline and approved products in a range of solid tumors and hematologic malignancies. Our communities, employees, partners and patients have been affected by the ongo- ing COVID-19 pandemic, and we stand side-by-side with them. Such challenges highlight human resilience, adaptation and the importance of healthcare innovation. Seagen’s passion and unwavering commit- ment to developing transformative cancer therapies, while protecting our people, has never been stronger. We have worked to prioritize the safety, health and well- being of our employees, communities, suppliers and partners during the pandemic. Seagen launched three transformational new cancer therapies over a two-year period while delivering a continuous supply of our med- icines to patients who needed them around the world. We also remained focused on progressing our pipeline of tomorrow’s potential oncology medicines. Seagen is committed to delivering its mission in a com- pliant, ethical and accountable manner, while having a positive impact on our communities, society and the planet. Last year, we launched our inaugural Corporate Responsibility Report, providing an overview of our envi- ronment, social, and governance (ESG) priorities, perfor- mance, milestones, and future commitments. It highlights the ways we are working to create and maintain sustain- able operations across our business. We believe these efforts will enable us to best deliver upon our fundamen- tal objective of developing oncology medicines both today and in the future. Our recent achievements have helped to bolster our resilient core business and the solid foundation we continue to build upon. We expect to achieve multiple mile- stones in 2022, including clinical data read- outs, global regulatory and commercial progress, and advances across our pipe- line. We have set the stage for Seagen’s future and growth potential. We believe our multi-product portfolio, commercial engine, robust development, expanded geographic foot- print and over 50 strategic partnerships help to maxi- mize the value of our medicines and our ability to reach patients worldwide. Coupled with our financial strength, innovative research and active corporate development, the Company is well-positioned to continue making a positive impact today and tomorrow on the lives of peo- ple with cancer. Clay B. Siegall, Ph.D. President, Chief Executive Officer, and Chairman of the Board PAGE 2 S E A G E N 2 0 2 1 A N N U A L R E P O R T 2021 Form 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K For the fiscal year ended December 31, 2021 OR (Mark One) ☒ ☐ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 Delaware 91-1874389 (State or other Jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) SEAGEN INC. (Exact name of registrant as specified in its charter) 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: Securities registered pursuant to Section 12(g) of the Act: SGEN None Title of class Common Stock, par value $0.001 Trading Symbol(s) Name of each exchange on which registered The Nasdaq Stock Market LLC days. Yes ☒ No ☐ Act. Large accelerated filer Non-accelerated filer 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 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 ☒ 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ 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 $21.0 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 48,842,953 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 183,626,064 shares of the registrant’s Common Stock issued and outstanding as of February 4, 2022. 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 2022 Annual Meeting of Stockholders. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☒ ☐ (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 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 SEAGEN 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 Common Stock, par value $0.001 Trading Symbol(s) SGEN Name of each exchange on which registered 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ 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 $21.0 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 48,842,953 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 183,626,064 shares of the registrant’s Common Stock issued and outstanding as of February 4, 2022. 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 2022 Annual Meeting of Stockholders. TABLE OF CONTENTS PART I Business Item 1. Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Item 4. Legal Proceedings Mine Safety Disclosures Item 5. Item 6. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PART II [Reserved] Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9. Item 9A. Controls and Procedures Item 9B. Other Information Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation PART III Item 12. Item 13. Item 14. Item 15. Item 16. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services PART IV Exhibits, Financial Statement Schedules Form 10-K Summary Signatures Page 3 36 68 68 68 68 69 70 70 87 88 120 120 120 121 122 122 122 122 122 123 131 132 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 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,” "could", “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. RISK FACTOR SUMMARY Investing in our securities involves a high degree of risk. Below is a summary of material factors that make an investment in our securities speculative or risky. Importantly, this summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, as well as other risks that we face, can be found under the heading “Item 1A—Risk Factors”, below. • • • • • • • 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 success also depends on our ability to obtain regulatory approvals for our product candidates and for our current products in additional territories, as well as our ability to expand the labeled indications of use for our current products. Our inability to do so could have a material adverse effect on our business, results of operations, financial condition 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. Clinical trials and product development are expensive, time consuming and uncertain, may take longer than we expect and may not be successful. Our failure to effectively advance our development programs in a timely manner or at all could have a material adverse effect on our business, results of operations, financial condition and growth prospects. The successful commercialization of our products will depend, in part, on the extent to which governmental authorities and health insurers establish adequate coverage and reimbursement levels and pricing policies. The successful commercialization of our products will also depend in part on the acceptance of our products by the medical community, patients and third-party payors. Any failures or setbacks in our antibody-drug conjugate, or ADC, development program or our other platform technologies could negatively affect our business and financial position. • 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. 2 1 TABLE OF CONTENTS PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Item 8. Item 9. Item 11. Item 12. Item 13. Item 14. Item 15. Item 16. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PART II [Reserved] Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Item 10. Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services PART III PART IV Exhibits, Financial Statement Schedules Form 10-K Summary Signatures Page 3 36 68 68 68 68 69 70 70 87 88 120 120 120 121 122 122 122 122 122 123 131 132 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 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,” "could", “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. RISK FACTOR SUMMARY Investing in our securities involves a high degree of risk. Below is a summary of material factors that make an investment in our securities speculative or risky. Importantly, this summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, as well as other risks that we face, can be found under the heading “Item 1A—Risk Factors”, below. • • • • • • • 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 success also depends on our ability to obtain regulatory approvals for our product candidates and for our current products in additional territories, as well as our ability to expand the labeled indications of use for our current products. Our inability to do so could have a material adverse effect on our business, results of operations, financial condition 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. Clinical trials and product development are expensive, time consuming and uncertain, may take longer than we expect and may not be successful. Our failure to effectively advance our development programs in a timely manner or at all could have a material adverse effect on our business, results of operations, financial condition and growth prospects. The successful commercialization of our products will depend, in part, on the extent to which governmental authorities and health insurers establish adequate coverage and reimbursement levels and pricing policies. The successful commercialization of our products will also depend in part on the acceptance of our products by the medical community, patients and third-party payors. Any failures or setbacks in our antibody-drug conjugate, or ADC, development program or our other platform technologies could negatively affect our business and financial position. • 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. 2 1 • • Our products and any future approved products remain subject to extensive ongoing regulatory obligations and oversight, including post-approval requirements, that could result in penalties and significant additional expense and could negatively impact our and our collaborators’ ability to commercialize our current and any future approved products. Healthcare law and policy changes may negatively impact our business, including by decreasing the prices that we and our collaborators receive for our products. • We are subject to various state, federal and international laws and regulations, including healthcare, data privacy and information security laws and regulations, that may impact our business and could subject us to significant fines and penalties or other negative consequences. • Our collaborators and licensees may not perform as expected, which may negatively affect our ability to develop and commercialize our products and product candidates and/or generate revenues through technology licensing, and may otherwise negatively affect our business. • We currently rely on third-party manufacturers and other third parties for production of our drug products, and our dependence on these third parties may impair the continued development and commercialization of our products and product candidates. • If we are unable to enforce our intellectual property rights or if we fail to sustain and further procure additional 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. • 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 been and may in the future be subject to litigation, which could result in substantial expenses and damages and may divert management’s time and attention from our business. • • • • The evolving effects of the COVID-19 pandemic and associated global economic instability could have further adverse effects on our business, including our commercialization efforts, supply chain, regulatory activities, clinical development activities and other business operations. If we are unable to manage our growth, our business, results of operations, financial condition and growth prospects may be adversely affected. Risks associated with our expanding operations in countries outside the U.S. could materially adversely affect our business. 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. • We have a history of net losses. We expect to continue to incur net losses and may not achieve future sustained profitability for some time, if at all. • • Our stock price is volatile and our shares may suffer a decline in value. Our existing stockholders have significant control of our management and affairs. Item 1. Business Overview PART I Seagen is a biotechnology company that develops and commercializes targeted therapies to treat cancer. We are commercializing ADCETRIS®, or brentuximab vedotin, for the treatment of certain CD30-expressing lymphomas, PADCEV®, or enfortumab vedotin-ejfv, for the treatment of certain metastatic urothelial cancers, TUKYSA®, or tucatinib, for the treatment of certain metastatic HER2-positive breast cancers, and TIVDAK®, or tisotumab vedotin-tftv, for the treatment of certain metastatic cervical cancers. We are also advancing a pipeline of novel therapies for solid tumors and blood-related cancers designed to address unmet medical needs and improve treatment outcomes for patients. Many of our programs, including ADCETRIS, PADCEV and TIVDAK, are based on our ADC technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells. Our strategy is to become a leading global oncology company developing and marketing targeted therapies for cancer. Key elements of our strategy are to maximize the potential of our approved medicines through successful commercial execution, expand the number of patients eligible to receive our medicines by securing approvals of our commercial products in other countries, conduct clinical trials designed to support additional labels for our products, and develop new first-in-class or best-in-class medicines. We seek to commercialize our products either on our own as we expand our operations globally or through commercial partnerships. We are deploying our internal research, clinical, development, regulatory and manufacturing expertise to advance and expand our deep pipeline of drug candidates aimed at gaining new product approvals. We conduct internal research 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 in support of our continued ADC innovation. In addition, we supplement these internal efforts by acquiring or in-licensing products, product candidates and technologies from biotechnology and pharmaceutical companies and academic institutions. COVID-19 We are continuing to closely monitor the impact of the evolving effects of the COVID-19 pandemic on our business. We are continuing to take proactive steps designed to protect the health and safety of our workforce, patients and healthcare professionals, to continue our business operations and to advance our goal of bringing important medicines to patients as rapidly as possible. For information regarding the impacts of the evolving effects of the COVID-19 pandemic on our ability and the ability of our collaborators to effectively market, sell and distribute our products and to develop our products and product candidates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Outlook” in Part II Item 7 of this Annual Report on Form 10-K. 2 3 • Our products and any future approved products remain subject to extensive ongoing regulatory obligations and oversight, including post-approval requirements, that could result in penalties and significant additional expense and could negatively impact our and our collaborators’ ability to commercialize our current and any future approved products. • Healthcare law and policy changes may negatively impact our business, including by decreasing the prices that we and our collaborators receive for our products. • We are subject to various state, federal and international laws and regulations, including healthcare, data privacy and information security laws and regulations, that may impact our business and could subject us to significant fines and penalties or other negative consequences. • Our collaborators and licensees may not perform as expected, which may negatively affect our ability to develop and commercialize our products and product candidates and/or generate revenues through technology licensing, and may otherwise negatively affect our business. • We currently rely on third-party manufacturers and other third parties for production of our drug products, and our dependence on these third parties may impair the continued development and commercialization of our products and product candidates. • If we are unable to enforce our intellectual property rights or if we fail to sustain and further procure additional 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. • 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 been and may in the future be subject to litigation, which could result in substantial expenses and damages and may divert management’s time and attention from our business. The evolving effects of the COVID-19 pandemic and associated global economic instability could have further adverse effects on our business, including our commercialization efforts, supply chain, regulatory activities, clinical development activities and other business operations. If we are unable to manage our growth, our business, results of operations, financial condition and growth prospects may be adversely affected. Risks associated with our expanding operations in countries outside the U.S. could materially adversely affect our business. 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. • We have a history of net losses. We expect to continue to incur net losses and may not achieve future sustained profitability for some time, if at all. Our stock price is volatile and our shares may suffer a decline in value. Our existing stockholders have significant control of our management and affairs. • • • • • • Item 1. Business Overview PART I Seagen is a biotechnology company that develops and commercializes targeted therapies to treat cancer. We are commercializing ADCETRIS®, or brentuximab vedotin, for the treatment of certain CD30-expressing lymphomas, PADCEV®, or enfortumab vedotin-ejfv, for the treatment of certain metastatic urothelial cancers, TUKYSA®, or tucatinib, for the treatment of certain metastatic HER2-positive breast cancers, and TIVDAK®, or tisotumab vedotin-tftv, for the treatment of certain metastatic cervical cancers. We are also advancing a pipeline of novel therapies for solid tumors and blood-related cancers designed to address unmet medical needs and improve treatment outcomes for patients. Many of our programs, including ADCETRIS, PADCEV and TIVDAK, are based on our ADC technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells. Our strategy is to become a leading global oncology company developing and marketing targeted therapies for cancer. Key elements of our strategy are to maximize the potential of our approved medicines through successful commercial execution, expand the number of patients eligible to receive our medicines by securing approvals of our commercial products in other countries, conduct clinical trials designed to support additional labels for our products, and develop new first-in-class or best-in-class medicines. We seek to commercialize our products either on our own as we expand our operations globally or through commercial partnerships. We are deploying our internal research, clinical, development, regulatory and manufacturing expertise to advance and expand our deep pipeline of drug candidates aimed at gaining new product approvals. We conduct internal research 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 in support of our continued ADC innovation. In addition, we supplement these internal efforts by acquiring or in-licensing products, product candidates and technologies from biotechnology and pharmaceutical companies and academic institutions. COVID-19 We are continuing to closely monitor the impact of the evolving effects of the COVID-19 pandemic on our business. We are continuing to take proactive steps designed to protect the health and safety of our workforce, patients and healthcare professionals, to continue our business operations and to advance our goal of bringing important medicines to patients as rapidly as possible. For information regarding the impacts of the evolving effects of the COVID-19 pandemic on our ability and the ability of our collaborators to effectively market, sell and distribute our products and to develop our products and product candidates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Outlook” in Part II Item 7 of this Annual Report on Form 10-K. 2 3 Our Medicines Our approved medicines include the following: Product* Therapeutic Area U.S. Approved Indication Previously untreated Stage III/IV classical Hodgkin lymphoma, or cHL, in combination with doxorubicin, vinblastine and dacarbazine Hodgkin Lymphoma cHL at high risk of relapse or progression as post-autologous hematopoietic stem cell transplantation, or auto-HSCT, consolidation cHL after failure of auto-HSCT or after failure of at least two prior multi-agent chemotherapy regimens in patients who are not auto-HSCT candidates Previously untreated systemic anaplastic large cell lymphoma, or sALCL, or other CD30-expressing peripheral T-cell lymphoma, or PTCL, including angioimmunoblastic T-cell lymphoma and PTCL not otherwise specified, in combination with cyclophosphamide, doxorubicin and prednisone T-cell Lymphoma sALCL after failure of at least one prior multi-agent chemotherapy regimen Primary cutaneous anaplastic large cell lymphoma, or pcALCL, or CD30-expressing mycosis fungoides who have received prior systemic therapy Urothelial Cancer • Locally advanced or metastatic urothelial cancer for patients who: have previously received a programmed death receptor-1 (PD-1) or programmed death-ligand 1 (PD-L1) inhibitor and platinum-containing chemotherapy, or are ineligible for cisplatin-containing chemotherapy and have previously received one or more prior lines of therapy. • Breast Cancer In combination with trastuzumab and capecitabine for the treatment of adult patients with advanced unresectable or metastatic HER2-positive breast cancer, including patients with brain metastases, who have received one or more prior anti-HER2-based regimens in the metastatic setting. Recurrent or metastatic cervical cancer with disease progression on or after chemotherapy. Cervical Cancer *ADCETRIS, PADCEV, TUKYSA and TIVDAK are only indicated for use in adults. 4 5 ADCETRIS is an ADC targeting CD30, which is a protein located on the surface of cells and highly expressed in Hodgkin lymphoma, certain T-cell lymphomas as well as other cancers. ADCETRIS first received U.S. Food and Drug Administration, or FDA, approval in 2011 and is now approved in a total of six indications to treat Hodgkin lymphoma and certain T-cell lymphomas in various settings including as frontline therapy. ADCETRIS has received approval in more than 75 countries worldwide. We commercialize ADCETRIS in the U.S. and its territories and in Canada, and we collaborate with Takeda Pharmaceutical Company Limited, or Takeda, to develop and commercialize ADCETRIS on a global basis. Under this collaboration, Takeda has commercial rights in the rest of the world and pays us a royalty. Takeda has received regulatory approvals for ADCETRIS as monotherapy or in combination with other agents in various settings for the treatment of patients with Hodgkin lymphoma or CD30-positive T-cell lymphomas in Europe and many countries throughout the rest of the world and is pursuing additional regulatory ADCETRIS® approvals. PADCEV® PADCEV is an ADC targeting Nectin-4, a protein expressed on the surface of cells and highly expressed in bladder cancer as well as other cancers. PADCEV was granted accelerated approval by the FDA in December 2019 for the treatment of adult patients with locally advanced or metastatic urothelial cancer who have previously received a PD-1 or PD-L1 inhibitor and a platinum-containing chemotherapy before (neoadjuvant) or after (adjuvant) surgery in the locally advanced or metastatic setting. FDA approval of PADCEV was supported by data from a single-arm pivotal phase 2 clinical trial called EV-201. In July 2021, the FDA converted PADCEV's accelerated approval to regular approval in the U.S., in addition to granting regular approval for a new indication for adult patients with locally advanced or metastatic urothelial cancer who are ineligible for cisplatin-containing chemotherapy and have previously received one or more prior lines of therapy. The conversion to regular approval was supported by the pivotal phase 3 clinical trial called EV-301 and the expanded indication was supported by data from the second cohort in the EV-201 trial. The FDA reviewed the application for regular approval under the Oncology Center of Excellence's, or OCE's, Real Time Oncology Review, or RTOR, pilot program. cancer. PADCEV is also approved in Canada, Israel, Japan, and Switzerland in previously treated metastatic urothelial 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. We record net sales of PADCEV in the U.S. and are responsible for all U.S. 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. Outside the U.S., we have commercialization rights in all other 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. TUKYSA® TUKYSA is an oral, small molecule tyrosine kinase inhibitor, or TKI, that is highly selective for HER2, a growth factor receptor overexpressed in certain cancers. HER2 mediates cell growth, differentiation and survival. Tumors that over-express HER2 are generally more aggressive and historically have been associated with poor overall survival, compared with HER2-negative cancers. In April 2020, TUKYSA received approval from the FDA in combination with trastuzumab and capecitabine for the treatment of adult patients with advanced unresectable or metastatic HER2-positive breast cancer, including patients with brain metastases, who have received one or more prior anti-HER2-based regimens in the metastatic setting. FDA approval of TUKYSA was supported by data from the HER2CLIMB trial. Our Medicines Our approved medicines include the following: Product* Therapeutic Area U.S. Approved Indication Previously untreated Stage III/IV classical Hodgkin lymphoma, or cHL, in combination with doxorubicin, vinblastine and dacarbazine Hodgkin Lymphoma cHL at high risk of relapse or progression as post-autologous hematopoietic stem cell transplantation, or auto-HSCT, consolidation T-cell Lymphoma sALCL after failure of at least one prior multi-agent chemotherapy 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 Previously untreated systemic anaplastic large cell lymphoma, or sALCL, or other CD30-expressing peripheral T-cell lymphoma, or PTCL, including angioimmunoblastic T-cell lymphoma and PTCL not otherwise specified, in combination with cyclophosphamide, doxorubicin and prednisone regimen therapy Primary cutaneous anaplastic large cell lymphoma, or pcALCL, or CD30-expressing mycosis fungoides who have received prior systemic Locally advanced or metastatic urothelial cancer for patients who: have previously received a programmed death receptor-1 (PD-1) or programmed death-ligand 1 (PD-L1) inhibitor and platinum-containing chemotherapy, or are ineligible for cisplatin-containing chemotherapy and have previously received one or more prior lines of therapy. • • In combination with trastuzumab and capecitabine for the treatment of adult patients with advanced unresectable or metastatic HER2-positive breast cancer, including patients with brain metastases, who have received one or more prior anti-HER2-based regimens in the metastatic Recurrent or metastatic cervical cancer with disease progression on or after chemotherapy. Urothelial Cancer Breast Cancer setting. Cervical Cancer *ADCETRIS, PADCEV, TUKYSA and TIVDAK are only indicated for use in adults. ADCETRIS® ADCETRIS is an ADC targeting CD30, which is a protein located on the surface of cells and highly expressed in Hodgkin lymphoma, certain T-cell lymphomas as well as other cancers. ADCETRIS first received U.S. Food and Drug Administration, or FDA, approval in 2011 and is now approved in a total of six indications to treat Hodgkin lymphoma and certain T-cell lymphomas in various settings including as frontline therapy. ADCETRIS has received approval in more than 75 countries worldwide. We commercialize ADCETRIS in the U.S. and its territories and in Canada, and we collaborate with Takeda Pharmaceutical Company Limited, or Takeda, to develop and commercialize ADCETRIS on a global basis. Under this collaboration, Takeda has commercial rights in the rest of the world and pays us a royalty. Takeda has received regulatory approvals for ADCETRIS as monotherapy or in combination with other agents in various settings for the treatment of patients with Hodgkin lymphoma or CD30-positive T-cell lymphomas in Europe and many countries throughout the rest of the world and is pursuing additional regulatory approvals. PADCEV® PADCEV is an ADC targeting Nectin-4, a protein expressed on the surface of cells and highly expressed in bladder cancer as well as other cancers. PADCEV was granted accelerated approval by the FDA in December 2019 for the treatment of adult patients with locally advanced or metastatic urothelial cancer who have previously received a PD-1 or PD-L1 inhibitor and a platinum-containing chemotherapy before (neoadjuvant) or after (adjuvant) surgery in the locally advanced or metastatic setting. FDA approval of PADCEV was supported by data from a single-arm pivotal phase 2 clinical trial called EV-201. In July 2021, the FDA converted PADCEV's accelerated approval to regular approval in the U.S., in addition to granting regular approval for a new indication for adult patients with locally advanced or metastatic urothelial cancer who are ineligible for cisplatin-containing chemotherapy and have previously received one or more prior lines of therapy. The conversion to regular approval was supported by the pivotal phase 3 clinical trial called EV-301 and the expanded indication was supported by data from the second cohort in the EV-201 trial. The FDA reviewed the application for regular approval under the Oncology Center of Excellence's, or OCE's, Real Time Oncology Review, or RTOR, pilot program. PADCEV is also approved in Canada, Israel, Japan, and Switzerland in previously treated metastatic urothelial cancer. 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. We record net sales of PADCEV in the U.S. and are responsible for all U.S. 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. Outside the U.S., we have commercialization rights in all other 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. TUKYSA® TUKYSA is an oral, small molecule tyrosine kinase inhibitor, or TKI, that is highly selective for HER2, a growth factor receptor overexpressed in certain cancers. HER2 mediates cell growth, differentiation and survival. Tumors that over-express HER2 are generally more aggressive and historically have been associated with poor overall survival, compared with HER2-negative cancers. In April 2020, TUKYSA received approval from the FDA in combination with trastuzumab and capecitabine for the treatment of adult patients with advanced unresectable or metastatic HER2-positive breast cancer, including patients with brain metastases, who have received one or more prior anti-HER2-based regimens in the metastatic setting. FDA approval of TUKYSA was supported by data from the HER2CLIMB trial. 4 5 The application for approval was reviewed under the FDA's RTOR pilot program. We also participated in the Project Orbis initiative of the FDA OCE which provides a framework for concurrent submission and review of oncology products among international partners. Under this program we have received approval in the U.S., Canada, Australia, Singapore, and Switzerland. In February 2021, the EC granted marketing authorization for TUKYSA in combination with trastuzumab and capecitabine for the treatment of adult patients with HER2-positive locally advanced or metastatic breast cancer who have received at least two prior anti-HER2 treatment regimens. This approval is valid in all countries of the European Union as well as Norway, Liechtenstein, Iceland and Northern Ireland. In Europe, we have begun marketing TUKYSA in Austria, France, Germany and Switzerland. Additionally, in February 2021, the UK Medicines and Healthcare products Regulatory Agency, or MHRA, granted a Great Britain marketing authorization for TUKYSA. We are responsible for commercializing TUKYSA in the U.S., Canada and Europe. In September 2020, we entered into a license and collaboration agreement, or the TUKYSA Agreement, with Merck & Co., Inc., or Merck, pursuant to which we granted exclusive rights to Merck to commercialize TUKYSA in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe. The collaboration is intended to accelerate global availability of TUKYSA. TIVDAK® TIVDAK is an ADC targeting tissue factor, a protein expressed on the surface of cells that has increased levels of expression on multiple solid tumors. The FDA granted accelerated approval of TIVDAK in September 2021 for the treatment of adult patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy. FDA approval was supported by data from the innovaTV 204 trial where it was evaluated in patients with recurrent or metastatic cervical cancer who had received no more than two prior systemic regimens in the recurrent or metastatic setting, including at least one prior platinum-based chemotherapy regimen. Continued approval may be contingent upon verification and description of clinical benefit in confirmatory trials. TIVDAK is being co-developed with Genmab A/S, or Genmab, under an agreement in which the companies share all costs and profits for the product on a 50:50 basis. Under a joint commercialization agreement, we and Genmab co-promote TIVDAK in the U.S. and we record net sales of TIVDAK in the U.S. and are responsible for leading U.S. distribution activities. The companies will each maintain 50% of the sales representatives and medical science liaisons, equally share those and certain other costs associated with commercializing TIVDAK in the U.S., and equally share in any profits realized in the U.S. Outside the U.S., we have commercialization rights in the rest of the world except for Japan, where Genmab has commercialization rights. In Europe, China, and Japan, we and Genmab will equally share 50% of the costs associated with commercializing TIVDAK as well as any profits realized in these markets. In markets outside the U.S. other than Europe, China, and Japan, aside from certain costs specified in the agreement, we will be solely responsible for all costs associated with commercializing TIVDAK, and will pay Genmab a royalty based on a percentage of aggregate net sales. Our Clinical Development Pipeline The following table summarizes the key clinical trials of ADCETRIS, PADCEV, TUKYSA and TIVDAK: Product Tumor Type Setting Trial Name / Description Diffuse large B-cell lymphoma ECHELON-3: In combination with lenalidomide and Phase 3* Hodgkin lymphoma In combination with nivolumab, doxorubicin and Phase 2 Peripheral T-cell lymphoma (< 10% In combination with cyclophosphamide, doxorubicin Phase 2* CheckMate 744: In combination with nivolumab1 Phase 2 rituximab dacarbazine Monotherapy Retreatment and prednisone inhibitor treatment chemotherapy alone pembrolizumab pembrolizumab EV-104: intravesical EV-202: Monotherapy In combination with pembrolizumab | post PD-1 Phase 2 EV-302: In combination with pembrolizumab vs Phase 3* 1L/2L EV-103: Monotherapy and in combination with Phase 2* EV-303/KEYNOTE-905: In combination with Phase 3* pembrolizumab | cisplatin-ineligible EV-304/KEYNOTE-B15: In combination with Phase 3* pembrolizumab | cisplatin-eligible EV-103: Monotherapy and in combination with Phase 2 ADCETRIS (brentuximab vedotin) Hodgkin lymphoma or Peripheral T-cell lymphoma, unfit for chemotherapy Hodgkin lymphoma or Peripheral T-cell lymphoma Hodgkin lymphoma (pediatrics) CD30 expression) Metastatic solid tumors Locally advanced or metastatic urothelial cancer PADCEV (enfortumab vedotin-ejfv)2 Muscle invasive bladder cancer Non-muscle invasive bladder cancer Locally advanced or metastatic solid tumors HER2+ metastatic breast cancer High risk HER2+ breast cancer HER2+ metastatic breast cancer HER2CLIMB-02: In combination with T-DM1 COMPASSHER2 RD4: In combination with T-DM1 maintenance HER2CLIMB-05: In combination with trastuzumab and pertuzumab TUKYSA (tucatinib) HER2+ metastatic breast cancer HER2CLIMB-04: In combination with Phase 2 trastuzumab deruxtecan HER2+ metastatic colorectal cancer HER2+ gastroesophogeal cancer MOUNTAINEER: In combination with trastuzumab Phase 2* MOUNTAINEER-02: In combination trastuzumab, Phase 2* Metastatic solid tumors HER2 alterations HER2+ gastric cancer TIVDAK (tisotumab vedotin- tftv)3 Locally advanced solid tumors Metastatic solid tumors Platinum-resistant ovarian cancer ramucirumab and chemotherapy In combination trastuzumab** In combination with trastuzumab and other anti- cancer agents innovaTV 301: Monotherapy agents innovaTV 206: (Japan only) innovaTV 207: Monotherapy or in combination innovaTV 208: Monotherapy Metastatic/recurrent cervical cancer innovaTV 205: In combination with other anti-cancer Phase 1/2 1L: front/first-line 2L:second-line R/R:relapsed or refractory ADJ = adjuvant P = perioperative BCGU= BCG unresponsive * indicates registrational intent **HR-positive metastatic breast cancer also in combination with fulvestrant Clinical collaboration with Bristol-Myers Squibb 50:50 co-development and commercial collaboration with Astellas 50:50 co-development and commercial collaboration with Genmab 1. 2. 3. 4. Conducted in collaboration with Alliance for Clinical Trials in Oncology and National Cancer Institute (NCI) R/R 1L 1L R/R R/R 1L R/R 1L P P P BCGU 2L+ 1L/2L ADJ 1L 2L+ R/R 2L 2L 1L 2L/3L 1L/2L 2L/3L R/R 2L Development Status Phase 2 Phase 2* Phase 1 Phase 2 Phase 3* Phase 3* Phase 3* Phase 2 Phase 1 Phase 3* Phase 2 Phase 2 Phase 2 6 7 Project Orbis initiative of the FDA OCE which provides a framework for concurrent submission and review of oncology products among international partners. Under this program we have received approval in the U.S., Canada, Australia, Singapore, and Switzerland. In February 2021, the EC granted marketing authorization for TUKYSA in combination with trastuzumab and capecitabine for the treatment of adult patients with HER2-positive locally advanced or metastatic breast cancer who have received at least two prior anti-HER2 treatment regimens. This approval is valid in all countries of the European Union as well as Norway, Liechtenstein, Iceland and Northern Ireland. In Europe, we have begun marketing TUKYSA in Austria, France, Germany and Switzerland. Additionally, in February 2021, the UK Medicines and Healthcare products Regulatory Agency, or MHRA, granted a Great Britain marketing authorization for TUKYSA. We are responsible for commercializing TUKYSA in the U.S., Canada and Europe. In September 2020, we entered into a license and collaboration agreement, or the TUKYSA Agreement, with Merck & Co., Inc., or Merck, pursuant to which we granted exclusive rights to Merck to commercialize TUKYSA in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe. The collaboration is intended to accelerate global availability of TUKYSA. TIVDAK® TIVDAK is an ADC targeting tissue factor, a protein expressed on the surface of cells that has increased levels of expression on multiple solid tumors. The FDA granted accelerated approval of TIVDAK in September 2021 for the treatment of adult patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy. FDA approval was supported by data from the innovaTV 204 trial where it was evaluated in patients with recurrent or metastatic cervical cancer who had received no more than two prior systemic regimens in the recurrent or metastatic setting, including at least one prior platinum-based chemotherapy regimen. Continued approval may be contingent upon verification and description of clinical benefit in confirmatory trials. TIVDAK is being co-developed with Genmab A/S, or Genmab, under an agreement in which the companies share all costs and profits for the product on a 50:50 basis. Under a joint commercialization agreement, we and Genmab co-promote TIVDAK in the U.S. and we record net sales of TIVDAK in the U.S. and are responsible for leading U.S. distribution activities. The companies will each maintain 50% of the sales representatives and medical science liaisons, equally share those and certain other costs associated with commercializing TIVDAK in the U.S., and equally share in any profits realized in the U.S. Outside the U.S., we have commercialization rights in the rest of the world except for Japan, where Genmab has commercialization rights. In Europe, China, and Japan, we and Genmab will equally share 50% of the costs associated with commercializing TIVDAK as well as any profits realized in these markets. In markets outside the U.S. other than Europe, China, and Japan, aside from certain costs specified in the agreement, we will be solely responsible for all costs associated with commercializing TIVDAK, and will pay Genmab a royalty based on a percentage of aggregate net sales. The application for approval was reviewed under the FDA's RTOR pilot program. We also participated in the Our Clinical Development Pipeline The following table summarizes the key clinical trials of ADCETRIS, PADCEV, TUKYSA and TIVDAK: Product Tumor Type Setting Trial Name / Description ADCETRIS (brentuximab vedotin) Diffuse large B-cell lymphoma Hodgkin lymphoma Hodgkin lymphoma or Peripheral T-cell lymphoma, unfit for chemotherapy Hodgkin lymphoma or Peripheral T-cell lymphoma Hodgkin lymphoma (pediatrics) Peripheral T-cell lymphoma (< 10% CD30 expression) Metastatic solid tumors Locally advanced or metastatic urothelial cancer PADCEV (enfortumab vedotin-ejfv)2 Muscle invasive bladder cancer Non-muscle invasive bladder cancer Locally advanced or metastatic solid tumors HER2+ metastatic breast cancer High risk HER2+ breast cancer HER2+ metastatic breast cancer HER2+ metastatic breast cancer HER2+ metastatic colorectal cancer HER2+ gastroesophogeal cancer Metastatic solid tumors HER2 alterations HER2+ gastric cancer TUKYSA (tucatinib) TIVDAK (tisotumab vedotin- tftv)3 Metastatic/recurrent cervical cancer Locally advanced solid tumors Metastatic solid tumors Platinum-resistant ovarian cancer R/R 1L 1L R/R R/R 1L R/R 1L 1L/2L P P P BCGU 2L+ 1L/2L ADJ 1L maintenance 2L+ R/R 2L 2L 1L 2L/3L 1L/2L 2L/3L R/R 2L ECHELON-3: In combination with lenalidomide and rituximab In combination with nivolumab, doxorubicin and dacarbazine Monotherapy Retreatment CheckMate 744: In combination with nivolumab1 In combination with cyclophosphamide, doxorubicin and prednisone In combination with pembrolizumab | post PD-1 inhibitor treatment EV-302: In combination with pembrolizumab vs chemotherapy alone EV-103: Monotherapy and in combination with pembrolizumab EV-303/KEYNOTE-905: In combination with pembrolizumab | cisplatin-ineligible EV-304/KEYNOTE-B15: In combination with pembrolizumab | cisplatin-eligible EV-103: Monotherapy and in combination with pembrolizumab EV-104: intravesical EV-202: Monotherapy HER2CLIMB-02: In combination with T-DM1 COMPASSHER2 RD4: In combination with T-DM1 HER2CLIMB-05: In combination with trastuzumab and pertuzumab HER2CLIMB-04: In combination with trastuzumab deruxtecan Development Status Phase 3* Phase 2 Phase 2 Phase 2* Phase 2 Phase 2* Phase 2 Phase 3* Phase 2* Phase 3* Phase 3* Phase 2 Phase 1 Phase 2 Phase 3* Phase 3* Phase 3* Phase 2 MOUNTAINEER: In combination with trastuzumab Phase 2* MOUNTAINEER-02: In combination trastuzumab, ramucirumab and chemotherapy In combination trastuzumab** In combination with trastuzumab and other anti- cancer agents innovaTV 301: Monotherapy innovaTV 205: In combination with other anti-cancer agents innovaTV 206: (Japan only) innovaTV 207: Monotherapy or in combination innovaTV 208: Monotherapy Phase 2* Phase 2 Phase 1 Phase 3* Phase 1/2 Phase 2 Phase 2 Phase 2 1L: front/first-line 2L:second-line R/R:relapsed or refractory ADJ = adjuvant P = perioperative BCGU= BCG unresponsive * indicates registrational intent **HR-positive metastatic breast cancer also in combination with fulvestrant 1. 2. 3. 4. Clinical collaboration with Bristol-Myers Squibb 50:50 co-development and commercial collaboration with Astellas 50:50 co-development and commercial collaboration with Genmab Conducted in collaboration with Alliance for Clinical Trials in Oncology and National Cancer Institute (NCI) 6 7 The table below lists the clinical trials of our development candidates. Product Candidates Tumor Type Disitamab Vedotin Ladiratuzumab Vedotin1 HER2-expressing metastatic urothelial cancer Metastatic triple-negative breast cancer Metastatic solid tumors Metastatic breast cancer SEA-CD40 Pancreatic cancer Setting 2L/3L 1L R/R R/R 1L Melanoma and non-small cell lung cancer 1L/R/R SEA-TGT SEA-BCMA Solid tumors and lymphoma Multiple myeloma SEA-CD70 SGN-CD228A SGN-B6A SGN-STNV SGN-PDL1V SGN-B7H4V SGN-ALPV MDS / AML Solid tumors Solid tumors Solid tumors Solid tumors Solid tumors Solid tumors R/R R/R R/R R/R R/R R/R R/R R/R R/R Trial Name / Description Monotherapy In combination with pembrolizumab Monotherapy Monotherapy In combination with other anti-cancer agents In combination with pembrolizumab and other ant-cancer agents Monotherapy or in combination with sasanlimab Monotherapy and in combination with other anti-cancer agents Monotherapy Monotherapy Monotherapy Monotherapy Monotherapy Monotherapy Monotherapy Development Status Phase 2 Phase 2 Phase 2 Phase 1 Phase 1 Phase 2 Phase 1 Phase 1 Phase 1 Phase 1 Phase 1 Phase 1 Phase 1 Phase 1 Phase 1 1L: front/first-line 2L:second-line 3L: third-line R/R:relapsed or refractory 1. 50:50 co-development and commercial collaboration with Merck Clinical Development Status ADCETRIS (brentuximab vedotin) Beyond our current labeled indications, we are evaluating ADCETRIS as monotherapy and in combination with other agents in ongoing trials, including several potential registration-enabling trials such as the ECHELON-3 phase 3 trial in relapsed or refractory diffuse large B-cell lymphoma. In addition to our corporate-sponsored trials there are numerous investigator-sponsored trials of ADCETRIS in the United States. The investigator-sponsored trials include the use of ADCETRIS in a number of malignant hematologic indications and in solid tumors. In February 2022, the Company announced that the phase 3 ECHELON-1 clinical trial demonstrated a statistically significant improvement in OS (p=0.009) in patients with advanced Hodgkin lymphoma following treatment with ADCETRIS in combination with chemotherapy. With approximately six years median follow up, patients receiving ADCETRIS plus doxorubicin, vinblastine, and dacarbazine (A+AVD) in the frontline setting had a 41 percent reduction in the risk of death (HR 0.59; [95% CI: 0.396 to 0.879]) compared with patients receiving doxorubicin, bleomycin, vinblastine, and dacarbazine (ABVD). The safety profile of ADCETRIS was consistent with previous studies and no new safety events were observed. PADCEV (enfortumab vedotin-ejfv) In collaboration with Astellas we are conducting or planning to conduct clinical trials across the spectrum of bladder cancer including ongoing trials in frontline metastatic urothelial cancer and muscle invasive bladder cancer. We are planning to conduct a trial in non-muscle invasive bladder cancer. In addition, we are conducting a trial in a range of other solid tumors. In September 2020, we announced that the EV-301 trial, which compared PADCEV to chemotherapy in adult patients with locally advanced or metastatic urothelial cancer who were previously treated with platinum-based chemotherapy and a PD-1/L1 inhibitor, met its primary endpoint of overall survival, or OS, compared to chemotherapy. For patients in the PADCEV arm of the trial, rash, fatigue, and decreased neutrophil count were the most frequent Grade 3 or greater treatment-related adverse events occurring in more than 5 percent of patients. In July 2021, the FDA converted PADCEV's accelerated approval to regular approval based on data from the EV-301 trial. In March 2021, the EMA accepted for review a Marketing Authorization Application for PADCEV based on the EV-301 trial. In December 2021, the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, adopted a positive opinion, recommending approval of PADCEV as monotherapy for the treatment of adult patients with locally advanced or metastatic urothelial cancer who have previously received platinum- containing chemotherapy and a PD-1/L1 inhibitor. The European Commission decision-making process has been paused for additional CHMP questions related to severe skin reactions in a French compassionate access program. European Commission decisions are valid in the European Union Member States, as well as Iceland, Norway and Liechtenstein. In addition, applications are under review for PADCEV approval in Australia, under the FDA's Project Orbis program, as well as in Singapore, Brazil and other countries. In July 2021, the FDA granted regular approval for a new indication for adult patients with locally advanced or metastatic urothelial cancer who are ineligible for cisplatin-containing chemotherapy and have previously received one or more prior lines of therapy. The approval was based on data from the second cohort of the EV-201 trial. PADCEV is also being investigated in first-line metastatic urothelial cancer and earlier stages of bladder cancer. We and Astellas are conducting a phase 1b/2 clinical trial, called EV-103, that is a multi-cohort, open-label trial of PADCEV alone or in combination with other agents. The trial is evaluating safety, tolerability and activity in locally advanced and first- and second-line metastatic urothelial cancer, and was expanded to include muscle invasive bladder cancer, or MIBC. In February 2020, based on the positive initial results of the dose-escalation cohort and the expansion Cohort A of the EV-103 trial, the FDA granted Breakthrough Therapy designation for PADCEV in combination with pembrolizumab for the treatment of patients with unresectable locally advanced or metastatic urothelial cancer who are unable to receive cisplatin-based chemotherapy in the first-line setting. In April 2020, we announced that, based on discussions with the FDA, data from the randomized cohort K in the EV-103 trial, along with other data from the EV-103 trial, could potentially support registration under the FDA's accelerated approval pathway. The primary outcome measures are objective response rate and duration of response, or DOR. In October 2021, we completed enrollment in cohort K. In addition to the potential accelerated approval pathway based on the EV-103 trial, we are conducting a global, registrational phase 3 trial, called EV-302, in frontline metastatic urothelial cancer in collaboration with Astellas and Merck. We, Astellas and Merck are jointly funding EV-302 and the trial is being conducted by us. EV-302 is an open- label, randomized phase 3 clinical trial evaluating the combination of PADCEV and pembrolizumab versus chemotherapy alone in patients with previously untreated locally advanced or metastatic urothelial cancer. The trial includes metastatic urothelial cancer patients who are either eligible or ineligible for cisplatin-based chemotherapy. The trial has dual primary endpoints of progression free survival, or PFS, and overall survival, or OS, and is intended to support global regulatory submissions and potentially serve as a confirmatory trial if accelerated approval is granted based on EV-103. In April 2020, we and Astellas entered into an agreement with Merck to evaluate PADCEV in MIBC. Merck has amended its ongoing phase 3 KEYNOTE-905/EV-303 registrational trial in cisplatin-ineligible patients with MIBC to include an arm evaluating PADCEV in combination with pembrolizumab. In October 2020, we and Astellas entered into an agreement with Merck to evaluate PADCEV in combination with pembrolizumab in a phase 3 trial, called KEYNOTE-B15/EV-304, to be conducted by Merck in cisplatin-eligible patients with MIBC. This trial was initiated in the first quarter of 2021. In January 2021, we enrolled the first patient in a phase 1 trial, called EV-104, evaluating PADCEV in patients with BCG unresponsive non-muscle invasive bladder cancer. In January 2020, we and Astellas also initiated a phase 2 clinical trial, called EV-202, to evaluate PADCEV monotherapy in solid tumors that have high-levels of Nectin-4 expression, including non-small cell lung, head and neck, gastric/esophageal and breast cancers. TUKYSA (tucatinib) We are conducting a broad clinical development program for TUKYSA including ongoing and planned trials in earlier lines of breast cancer and in other HER2-positive cancers. The positive results of the HER2CLIMB trial served as the basis for approval in the U.S., Canada, the European Union as well as other countries. Merck is co-funding a portion of the TUKYSA global development plan. 8 9 The table below lists the clinical trials of our development candidates. Product Candidates Tumor Type Trial Name / Description Development Disitamab Vedotin cancer HER2-expressing metastatic urothelial Monotherapy Metastatic triple-negative breast cancer In combination with pembrolizumab Ladiratuzumab Vedotin1 Metastatic solid tumors Metastatic breast cancer SEA-CD40 Pancreatic cancer In combination with other anti-cancer agents Melanoma and non-small cell lung cancer 1L/R/R In combination with pembrolizumab and other ant-cancer SEA-TGT SEA-BCMA Solid tumors and lymphoma Multiple myeloma Monotherapy or in combination with sasanlimab Monotherapy and in combination with other anti-cancer Setting 2L/3L 1L R/R R/R 1L R/R R/R R/R R/R R/R R/R R/R R/R R/R Monotherapy Monotherapy agents agents Monotherapy Monotherapy Monotherapy Monotherapy Monotherapy Monotherapy Monotherapy SEA-CD70 SGN-CD228A SGN-B6A SGN-STNV SGN-PDL1V SGN-B7H4V SGN-ALPV MDS / AML Solid tumors Solid tumors Solid tumors Solid tumors Solid tumors Solid tumors 1L: front/first-line 2L:second-line 3L: third-line R/R:relapsed or refractory 1. 50:50 co-development and commercial collaboration with Merck Clinical Development Status ADCETRIS (brentuximab vedotin) Status Phase 2 Phase 2 Phase 2 Phase 1 Phase 1 Phase 2 Phase 1 Phase 1 Phase 1 Phase 1 Phase 1 Phase 1 Phase 1 Phase 1 Phase 1 Beyond our current labeled indications, we are evaluating ADCETRIS as monotherapy and in combination with other agents in ongoing trials, including several potential registration-enabling trials such as the ECHELON-3 phase 3 trial in relapsed or refractory diffuse large B-cell lymphoma. In addition to our corporate-sponsored trials there are numerous investigator-sponsored trials of ADCETRIS in the United States. The investigator-sponsored trials include the use of ADCETRIS in a number of malignant hematologic indications and in solid tumors. In February 2022, the Company announced that the phase 3 ECHELON-1 clinical trial demonstrated a statistically significant improvement in OS (p=0.009) in patients with advanced Hodgkin lymphoma following treatment with ADCETRIS in combination with chemotherapy. With approximately six years median follow up, patients receiving ADCETRIS plus doxorubicin, vinblastine, and dacarbazine (A+AVD) in the frontline setting had a 41 percent reduction in the risk of death (HR 0.59; [95% CI: 0.396 to 0.879]) compared with patients receiving doxorubicin, bleomycin, vinblastine, and dacarbazine (ABVD). The safety profile of ADCETRIS was consistent with previous studies and no new safety events were observed. PADCEV (enfortumab vedotin-ejfv) In collaboration with Astellas we are conducting or planning to conduct clinical trials across the spectrum of bladder cancer including ongoing trials in frontline metastatic urothelial cancer and muscle invasive bladder cancer. We are planning to conduct a trial in non-muscle invasive bladder cancer. In addition, we are conducting a trial in a range of other solid tumors. In September 2020, we announced that the EV-301 trial, which compared PADCEV to chemotherapy in adult patients with locally advanced or metastatic urothelial cancer who were previously treated with platinum-based chemotherapy and a PD-1/L1 inhibitor, met its primary endpoint of overall survival, or OS, compared to chemotherapy. For patients in the PADCEV arm of the trial, rash, fatigue, and decreased neutrophil count were the most frequent Grade 3 or greater treatment-related adverse events occurring in more than 5 percent of patients. In July 2021, the FDA converted PADCEV's accelerated approval to regular approval based on data from the EV-301 trial. In March 2021, the EMA accepted for review a Marketing Authorization Application for PADCEV based on the EV-301 trial. In December 2021, the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, adopted a positive opinion, recommending approval of PADCEV as monotherapy for the treatment of adult patients with locally advanced or metastatic urothelial cancer who have previously received platinum- containing chemotherapy and a PD-1/L1 inhibitor. The European Commission decision-making process has been paused for additional CHMP questions related to severe skin reactions in a French compassionate access program. European Commission decisions are valid in the European Union Member States, as well as Iceland, Norway and Liechtenstein. In addition, applications are under review for PADCEV approval in Australia, under the FDA's Project Orbis program, as well as in Singapore, Brazil and other countries. In July 2021, the FDA granted regular approval for a new indication for adult patients with locally advanced or metastatic urothelial cancer who are ineligible for cisplatin-containing chemotherapy and have previously received one or more prior lines of therapy. The approval was based on data from the second cohort of the EV-201 trial. PADCEV is also being investigated in first-line metastatic urothelial cancer and earlier stages of bladder cancer. We and Astellas are conducting a phase 1b/2 clinical trial, called EV-103, that is a multi-cohort, open-label trial of PADCEV alone or in combination with other agents. The trial is evaluating safety, tolerability and activity in locally advanced and first- and second-line metastatic urothelial cancer, and was expanded to include muscle invasive bladder cancer, or MIBC. In February 2020, based on the positive initial results of the dose-escalation cohort and the expansion Cohort A of the EV-103 trial, the FDA granted Breakthrough Therapy designation for PADCEV in combination with pembrolizumab for the treatment of patients with unresectable locally advanced or metastatic urothelial cancer who are unable to receive cisplatin-based chemotherapy in the first-line setting. In April 2020, we announced that, based on discussions with the FDA, data from the randomized cohort K in the EV-103 trial, along with other data from the EV-103 trial, could potentially support registration under the FDA's accelerated approval pathway. The primary outcome measures are objective response rate and duration of response, or DOR. In October 2021, we completed enrollment in cohort K. In addition to the potential accelerated approval pathway based on the EV-103 trial, we are conducting a global, registrational phase 3 trial, called EV-302, in frontline metastatic urothelial cancer in collaboration with Astellas and Merck. We, Astellas and Merck are jointly funding EV-302 and the trial is being conducted by us. EV-302 is an open- label, randomized phase 3 clinical trial evaluating the combination of PADCEV and pembrolizumab versus chemotherapy alone in patients with previously untreated locally advanced or metastatic urothelial cancer. The trial includes metastatic urothelial cancer patients who are either eligible or ineligible for cisplatin-based chemotherapy. The trial has dual primary endpoints of progression free survival, or PFS, and overall survival, or OS, and is intended to support global regulatory submissions and potentially serve as a confirmatory trial if accelerated approval is granted based on EV-103. In April 2020, we and Astellas entered into an agreement with Merck to evaluate PADCEV in MIBC. Merck has amended its ongoing phase 3 KEYNOTE-905/EV-303 registrational trial in cisplatin-ineligible patients with MIBC to include an arm evaluating PADCEV in combination with pembrolizumab. In October 2020, we and Astellas entered into an agreement with Merck to evaluate PADCEV in combination with pembrolizumab in a phase 3 trial, called KEYNOTE-B15/EV-304, to be conducted by Merck in cisplatin-eligible patients with MIBC. This trial was initiated in the first quarter of 2021. In January 2021, we enrolled the first patient in a phase 1 trial, called EV-104, evaluating PADCEV in patients with BCG unresponsive non-muscle invasive bladder cancer. In January 2020, we and Astellas also initiated a phase 2 clinical trial, called EV-202, to evaluate PADCEV monotherapy in solid tumors that have high-levels of Nectin-4 expression, including non-small cell lung, head and neck, gastric/esophageal and breast cancers. TUKYSA (tucatinib) We are conducting a broad clinical development program for TUKYSA including ongoing and planned trials in earlier lines of breast cancer and in other HER2-positive cancers. The positive results of the HER2CLIMB trial served as the basis for approval in the U.S., Canada, the European Union as well as other countries. Merck is co-funding a portion of the TUKYSA global development plan. 8 9 In December 2021, we presented new data at the San Antonio Breast Cancer Symposium from exploratory analyses from the pivotal HER2CLIMB trial showing that improvement in OS was maintained after an additional 15.6 months of follow-up when TUKYSA was combined with trastuzumab and capecitabine in patients with HER2-positive metastatic breast cancer who had stable or active brain metastases. After a median follow-up of 29.6 months, the TUKYSA regimen improved OS for patients with brain metastases by 9.1 months compared to trastuzumab and capecitabine alone (21.6 months vs. 12.5 months) (HR: 0.60; [95% CI: 0.44, 0.81]). The benefit extended to patients with active or stable brain metastases. In October 2019, we initiated a phase 3 randomized trial, called HER2CLIMB-02, evaluating TUKYSA versus placebo, each in combination with T-DM1, for patients with unresectable locally advanced or metastatic HER2-positive breast cancer, including those with brain metastases, who have had prior treatment with a taxane and trastuzumab. We are supporting a U.S. cooperative group, the Alliance for Clinical Trials in Oncology, that is conducting a phase 3 randomized trial, called CompassHER2 RD, which is evaluating TUKYSA in combination with T-DM1 in the adjuvant setting for patients with high-risk, HER2-positive breast cancer. We are also conducting a phase 2 trial, called HER2CLIMB-04, evaluating TUKYSA in combination with trastuzumab deruxtecan in previously treated locally-advanced or metastatic HER2-positive breast cancer. We are also initiating a phase 3 trial, called HER2CLIMB-05, evaluating TUKYSA compared to placebo in future costs and profits worldwide for LV. combination with trastuzumab and pertuzumab in the frontline maintenance setting for patients with metastatic HER2- positive breast cancer. We are conducting a phase 2 trial, called MOUNTAINEER, evaluating TUKYSA in combination with trastuzumab in patients with HER2-positive, RAS wild-type metastatic colorectal cancer after treatment with first- and second-line standard-of-care therapies. Initial results from 23 patients were presented at the ESMO 2019 Congress that demonstrated encouraging antitumor activity. In September 2021, we completed enrollment in the trial. We believe the trial could potentially support an application for accelerated approval in the U.S. We are conducting a phase 2/3 trial, called MOUNTAINEER-02, in combination with trastuzumab, ramucirumab and paclitaxel in second-line HER2-positive metastatic gastroesophageal cancer. We have also initiated a phase 1b trial evaluating TUKYSA in combination with trastuzumab and oxaliplatin based chemotherapy in first-line HER2-positive unresectable or metastatic colorectal, gastric, esophageal and gallbladder cancers. TIVDAK (tisotumab vedotin-tftv) In collaboration with Genmab, we are developing TIVDAK for metastatic cervical cancer and are evaluating it for other solid tumors. In September 2021, we received FDA accelerated approval of TIVDAK for the treatment of adult patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy. Continued approval may be contingent upon verification and description of clinical benefit in confirmatory trials. In January 2021, we and Genmab initiated a phase 3 clinical trial, called innovaTV 301, to evaluate TIVDAK compared to chemotherapy in patients with recurrent or metastatic cervical cancer who have received one or two prior lines of therapy. innovaTV 301 is intended to support global regulatory applications for potential approvals in regions where innovaTV 204 does not support approval and to serve as a confirmatory trial in the U.S. Additionally, we are conducting a phase 2 clinical trial, called innovaTV 207, for patients with relapsed, locally advanced or metastatic solid tumors and a phase 2 clinical trial, called innovaTV 208, for patients with platinum-resistant ovarian cancer. Disitamab Vedotin urothelial cancer. Ladiratuzumab Vedotin In September 2021, we and RemeGen entered into an exclusive license agreement to develop and commercialize disitamab vedotin, a novel HER2-targeted ADC, which has shown anti-tumor activity in several solid tumor types across a spectrum of HER2 levels, including urothelial, gastric and breast cancer, in all countries outside of RemeGen’s territory of Asia, excluding Japan and Singapore. We have a broad clinical development program planned including an ongoing phase 2 trial evaluating disitamab vedotin as monotherapy in previously treated HER2-expressing metastatic We are developing ladiratuzumab vedotin, or LV, an ADC targeting LIV-1, which is currently being evaluated in phase 1 and phase 2 clinical trials both as monotherapy and in combination with other agents for patients with metastatic breast cancer and select solid tumors with high LIV-1 expression. In September 2020, we and Merck entered into a license and collaboration agreement, or the LV Agreement, under which the companies will jointly develop and share Other clinical and early-stage product candidates We are advancing a pipeline of early-stage clinical candidates as well as multiple preclinical and research-stage programs that employ our proprietary technologies. We submitted three Investigational New Drug applications to the FDA in 2021. Our Antibody-Drug Conjugate (ADC) Technology ADCETRIS, PADCEV, TIVDAK 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. The drug linkers are designed to deliver the cytotoxic agent to tumors by virtue of the monoclonal antibody binding to the intended cell surface receptor on the target cell. The cytotoxic agent is released when the ADC internalizes within the target cell, resulting in cell killing. 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, TIVDAK, disitamab 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 are readily scalable 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 are also conducting a phase 2 clinical trial, called innovaTV 205, evaluating TIVDAK as monotherapy and in We continue to evaluate new linkers, antibody formats and cell-killing agents for use in our ADC programs. combination with certain other anti-cancer agents for first- and second-line treatment of patients with recurrent or advanced cervical cancer. In September 2021, interim results were presented at the European Society for Medical Oncology Annual Congress from two cohorts of the phase 1b/2 innovaTV 205 trial, evaluating TIVDAK as combination therapy for recurrent or metastatic cervical cancer. Both combinations showed encouraging, durable anti-tumor activity and demonstrated a manageable and acceptable safety profile. The combination with carboplatin in first-line treatment demonstrated an objective response rate, or ORR, of 55 percent and the median duration of response, or DOR, was 8.3 months. Grade 3 or greater adverse events, or AEs, occurred in 78.8 percent of patients with 57.6 percent of patients experiencing Grade 3 or greater AEs related to treatment with TIVDAK. The combination with pembrolizumab in patients who had received 1-2 prior systemic therapies achieved an ORR of 38 percent and a median DOR of 13.8 months. 10 11 In December 2021, we presented new data at the San Antonio Breast Cancer Symposium from exploratory analyses from the pivotal HER2CLIMB trial showing that improvement in OS was maintained after an additional 15.6 months of follow-up when TUKYSA was combined with trastuzumab and capecitabine in patients with HER2-positive metastatic breast cancer who had stable or active brain metastases. After a median follow-up of 29.6 months, the TUKYSA regimen improved OS for patients with brain metastases by 9.1 months compared to trastuzumab and capecitabine alone (21.6 months vs. 12.5 months) (HR: 0.60; [95% CI: 0.44, 0.81]). The benefit extended to patients with active or stable brain metastases. In October 2019, we initiated a phase 3 randomized trial, called HER2CLIMB-02, evaluating TUKYSA versus placebo, each in combination with T-DM1, for patients with unresectable locally advanced or metastatic HER2-positive breast cancer, including those with brain metastases, who have had prior treatment with a taxane and trastuzumab. We are supporting a U.S. cooperative group, the Alliance for Clinical Trials in Oncology, that is conducting a phase 3 randomized trial, called CompassHER2 RD, which is evaluating TUKYSA in combination with T-DM1 in the adjuvant setting for patients with high-risk, HER2-positive breast cancer. We are also conducting a phase 2 trial, called HER2CLIMB-04, evaluating TUKYSA in combination with trastuzumab deruxtecan in previously treated locally-advanced or metastatic HER2-positive breast cancer. We are also initiating a phase 3 trial, called HER2CLIMB-05, evaluating TUKYSA compared to placebo in combination with trastuzumab and pertuzumab in the frontline maintenance setting for patients with metastatic HER2- positive breast cancer. We are conducting a phase 2 trial, called MOUNTAINEER, evaluating TUKYSA in combination with trastuzumab in patients with HER2-positive, RAS wild-type metastatic colorectal cancer after treatment with first- and second-line standard-of-care therapies. Initial results from 23 patients were presented at the ESMO 2019 Congress that demonstrated encouraging antitumor activity. In September 2021, we completed enrollment in the trial. We believe the trial could potentially support an application for accelerated approval in the U.S. We are conducting a phase 2/3 trial, called MOUNTAINEER-02, in combination with trastuzumab, ramucirumab and paclitaxel in second-line HER2-positive metastatic gastroesophageal cancer. We have also initiated a phase 1b trial evaluating TUKYSA in combination with trastuzumab and oxaliplatin based chemotherapy in first-line HER2-positive unresectable or metastatic colorectal, gastric, esophageal and gallbladder cancers. TIVDAK (tisotumab vedotin-tftv) In collaboration with Genmab, we are developing TIVDAK for metastatic cervical cancer and are evaluating it for other solid tumors. In September 2021, we received FDA accelerated approval of TIVDAK for the treatment of adult patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy. Continued approval may be contingent upon verification and description of clinical benefit in confirmatory trials. In January 2021, we and Genmab initiated a phase 3 clinical trial, called innovaTV 301, to evaluate TIVDAK compared to chemotherapy in patients with recurrent or metastatic cervical cancer who have received one or two prior lines of therapy. innovaTV 301 is intended to support global regulatory applications for potential approvals in regions where innovaTV 204 does not support approval and to serve as a confirmatory trial in the U.S. We are also conducting a phase 2 clinical trial, called innovaTV 205, evaluating TIVDAK as monotherapy and in combination with certain other anti-cancer agents for first- and second-line treatment of patients with recurrent or advanced cervical cancer. In September 2021, interim results were presented at the European Society for Medical Oncology Annual Congress from two cohorts of the phase 1b/2 innovaTV 205 trial, evaluating TIVDAK as combination therapy for recurrent or metastatic cervical cancer. Both combinations showed encouraging, durable anti-tumor activity and demonstrated a manageable and acceptable safety profile. The combination with carboplatin in first-line treatment demonstrated an objective response rate, or ORR, of 55 percent and the median duration of response, or DOR, was 8.3 months. Grade 3 or greater adverse events, or AEs, occurred in 78.8 percent of patients with 57.6 percent of patients experiencing Grade 3 or greater AEs related to treatment with TIVDAK. The combination with pembrolizumab in patients who had received 1-2 prior systemic therapies achieved an ORR of 38 percent and a median DOR of 13.8 months. Additionally, we are conducting a phase 2 clinical trial, called innovaTV 207, for patients with relapsed, locally advanced or metastatic solid tumors and a phase 2 clinical trial, called innovaTV 208, for patients with platinum-resistant ovarian cancer. Disitamab Vedotin In September 2021, we and RemeGen entered into an exclusive license agreement to develop and commercialize disitamab vedotin, a novel HER2-targeted ADC, which has shown anti-tumor activity in several solid tumor types across a spectrum of HER2 levels, including urothelial, gastric and breast cancer, in all countries outside of RemeGen’s territory of Asia, excluding Japan and Singapore. We have a broad clinical development program planned including an ongoing phase 2 trial evaluating disitamab vedotin as monotherapy in previously treated HER2-expressing metastatic urothelial cancer. Ladiratuzumab Vedotin We are developing ladiratuzumab vedotin, or LV, an ADC targeting LIV-1, which is currently being evaluated in phase 1 and phase 2 clinical trials both as monotherapy and in combination with other agents for patients with metastatic breast cancer and select solid tumors with high LIV-1 expression. In September 2020, we and Merck entered into a license and collaboration agreement, or the LV Agreement, under which the companies will jointly develop and share future costs and profits worldwide for LV. Other clinical and early-stage product candidates We are advancing a pipeline of early-stage clinical candidates as well as multiple preclinical and research-stage programs that employ our proprietary technologies. We submitted three Investigational New Drug applications to the FDA in 2021. Our Antibody-Drug Conjugate (ADC) Technology ADCETRIS, PADCEV, TIVDAK 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. The drug linkers are designed to deliver the cytotoxic agent to tumors by virtue of the monoclonal antibody binding to the intended cell surface receptor on the target cell. The cytotoxic agent is released when the ADC internalizes within the target cell, resulting in cell killing. 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, TIVDAK, disitamab 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 are readily scalable 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. 10 11 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. Our preclinical data show that this results in increased binding to innate immune effector cells and enhanced potency in antibody dependent cellular cytotoxicity, or ADCC, in tumor cells. We believe this enhancement in ADCC activity may provide improved anti-tumor 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. We have several product candidates that are being evaluated in phase 1 clinical trials that utilize our SEA technology including SEA-CD40, SEA-TGT, SEA-BCMA and SEA-CD70. These agents are targeted at a variety of cancer types. 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 have potent anti-tumor activity in preclinical models. For our SEA technology we produce antibodies that demonstrate potent anti-tumor activities by virtue of ADCC, or through additional immune stimulatory mechanisms that are triggered by the enhanced binding potency to innate immune cells. Our ADCs 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 and immune stimulatory agents and new ADC linkers, the identification of novel drug targets and monoclonal antibodies, and 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. 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 and improved cancer cell selectivity and tolerability. 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 optimized 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, binding affinity optimization, 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, 2021, we had achieved milestone payments totaling $157.5 million related to regulatory and commercial progress by Takeda. As of December 31, 2021, total future potential development and regulatory milestone payments to us under this collaboration could total $77.0 million. 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. 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 equally co-funding all development costs 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. 12 13 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. Our preclinical data show that this results in increased binding to innate immune effector cells and enhanced potency in antibody dependent cellular cytotoxicity, or ADCC, in tumor cells. We believe this enhancement in ADCC activity may provide improved anti-tumor 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 We have several product candidates that are being evaluated in phase 1 clinical trials that utilize our SEA technology including SEA-CD40, SEA-TGT, SEA-BCMA and SEA-CD70. These agents are targeted at a variety of cell lines. cancer types. 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 have potent anti-tumor activity in preclinical models. For our SEA technology we produce antibodies that demonstrate potent anti-tumor activities by virtue of ADCC, or through additional immune stimulatory mechanisms that are triggered by the enhanced binding potency to innate immune cells. Our ADCs 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 and immune stimulatory agents and new ADC linkers, the identification of novel drug targets and monoclonal antibodies, and 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. 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 and improved cancer cell selectivity and tolerability. 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 optimized 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, binding affinity optimization, 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, 2021, we had achieved milestone payments totaling $157.5 million related to regulatory and commercial progress by Takeda. As of December 31, 2021, total future potential development and regulatory milestone payments to us under this collaboration could total $77.0 million. 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. 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 equally co-funding all development costs 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. 12 13 • 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 overseeing the manufacturing supply chain for PADCEV for development and commercial use. However, we are responsible for packaging and labeling in countries in which we sell PADCEV. In addition, if the parties determine that a second source is required, we will be responsible for establishing such second source, whether internally or through a third party. 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. Merck TUKYSA Collaboration In September 2020, we entered into the TUKYSA Agreement with Merck. Under the TUKYSA Agreement, we granted Merck exclusive rights to commercialize TUKYSA in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe. Merck is responsible for marketing applications for approval in its territory, supported by the positive results from the HER2CLIMB clinical trial. We retained commercial rights in, and will record sales in, the U.S., Canada and Europe. Merck also agreed to co-fund a portion of the TUKYSA global development plan, which encompasses several ongoing and planned trials across HER2-positive cancers. We will continue to lead ongoing TUKYSA global development operational execution. Merck will solely fund and conduct country-specific clinical trials necessary to support anticipated regulatory applications in its territories. Under the TUKYSA Agreement, we are responsible for supplying Merck with TUKYSA for the purpose of clinical development and commercialization. We received an upfront cash payment from Merck of $125.0 million and also received $85.0 million in prepaid research and development funding to be applied to Merck’s global development cost sharing obligations. We are eligible to receive progress-dependent milestone payments of up to $65.0 million, and are entitled to receive tiered royalties on sales of TUKYSA by Merck that begin in the low twenty percent range and escalate based sales volume by Merck in its territory. We owe Array Biopharma Inc., or Array, an affiliate of Pfizer, a portion of any non-royalty payments received from sublicensing TUKYSA rights, as well as a low double-digit royalty based on net sales of TUKYSA by us, and will owe a single-digit royalty based on net sales of TUKYSA by Merck in its territories. Genmab TIVDAK Collaboration We have a collaboration agreement with Genmab to develop and commercialize ADCs targeting tissue factor, under which we previously exercised a co-development option for TIVDAK. Under this collaboration, we and Genmab are co-funding all development costs for TIVDAK. In October 2020, we and Genmab entered into a joint commercialization agreement to govern the global commercialization of TIVDAK: • In the U.S., we and Genmab co-promote TIVDAK. We record sales of TIVDAK in the U.S. and are responsible for leading U.S. distribution activities. The companies will each maintain 50% of the sales representatives and medical science liaisons, equally share those and certain other costs associated with commercializing TIVDAK in the U.S., and equally share in any profits realized in the U.S. • Outside the U.S., we have commercialization rights in the rest of the world except for Japan, where Genmab has commercialization rights. In Europe, China, and Japan, we and Genmab will equally share 50% of the costs associated with commercializing TIVDAK as well as any profits realized in these markets. In markets outside the U.S. other than Europe, China, and Japan, aside from certain costs specified in the agreement, we will be solely responsible for all costs associated with commercializing TIVDAK, and will pay Genmab a royalty based on a percentage of aggregate net sales ranging from the mid-teens to mid-twenties. Under the joint commercialization agreement, we are responsible for overseeing the clinical and commercial manufacturing of TIVDAK. Either party may terminate the collaboration agreement or the joint commercialization agreement if the other party becomes insolvent or materially breaches the applicable 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. The opt out provisions of the collaboration agreement may also be applied to the joint commercialization agreement. In addition, Genmab may elect to opt out of co-promotion of TIVDAK in the United States by providing us with prior written notice. RemeGen Disitamab Vedotin License Agreement In September 2021, we and RemeGen entered into an exclusive worldwide licensing agreement to develop and commercialize disitamab vedotin, a novel HER2-targeted ADC. Under the terms of the agreement, we made a $200.0 million upfront payment to obtain exclusive license rights to disitamab vedotin for global development and commercialization, outside of RemeGen’s territory. RemeGen retains development and commercialization rights for Asia, excluding Japan and Singapore. We will lead global development and RemeGen will fund and operationalize the portion of global clinical trials attributable to its territory. RemeGen will also be responsible for all clinical development and regulatory submissions specific to its territory. We will pay RemeGen up to $195.0 million in potential milestone payments across multiple indications and products based upon the achievement of specified development goals, and up to $2.2 billion in potential milestone payments based on the achievement of specified regulatory and commercialization goals. RemeGen will be entitled to a tiered, high single digit to mid-teen percentage royalty based on net sales of disitamab vedotin in our territory. The agreement will remain in effect, unless earlier terminated, until the expiration, on a country-by-country and product-by-product basis, of the applicable royalty term, at which point the license for such product shall become fully paid-up, royalty-free, perpetual, irrevocable and non-exclusive in such country. The agreement also contains customary provisions for termination including by us for convenience, by either party in the event of breach of the agreement, subject to cure, upon a challenge of a party’s licensed patents or upon the other party’s bankruptcy. RemeGen has standard reversion rights in connection with certain early termination events. 14 15 • Outside the U.S., we have commercialization rights in all countries in North and South America, and Astellas Genmab TIVDAK Collaboration 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 overseeing the manufacturing supply chain for PADCEV for development and commercial use. However, we are responsible for packaging and labeling in countries in which we sell PADCEV. In addition, if the parties determine that a second source is required, we will be responsible for establishing such second source, whether internally or through a third party. 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. Merck TUKYSA Collaboration In September 2020, we entered into the TUKYSA Agreement with Merck. Under the TUKYSA Agreement, we granted Merck exclusive rights to commercialize TUKYSA in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe. Merck is responsible for marketing applications for approval in its territory, supported by the positive results from the HER2CLIMB clinical trial. We retained commercial rights in, and will record sales in, the U.S., Canada and Europe. Merck also agreed to co-fund a portion of the TUKYSA global development plan, which encompasses several ongoing and planned trials across HER2-positive cancers. We will continue to lead ongoing TUKYSA global development operational execution. Merck will solely fund and conduct country-specific clinical trials necessary to support anticipated regulatory applications in its territories. Under the TUKYSA Agreement, we are responsible for supplying Merck with TUKYSA for the purpose of clinical development and commercialization. We received an upfront cash payment from Merck of $125.0 million and also received $85.0 million in prepaid research and development funding to be applied to Merck’s global development cost sharing obligations. We are eligible to receive progress-dependent milestone payments of up to $65.0 million, and are entitled to receive tiered royalties on sales of TUKYSA by Merck that begin in the low twenty percent range and escalate based sales volume by Merck in its territory. We owe Array Biopharma Inc., or Array, an affiliate of Pfizer, a portion of any non-royalty payments received from sublicensing TUKYSA rights, as well as a low double-digit royalty based on net sales of TUKYSA by us, and will owe a single-digit royalty based on net sales of TUKYSA by Merck in its territories. We have a collaboration agreement with Genmab to develop and commercialize ADCs targeting tissue factor, under which we previously exercised a co-development option for TIVDAK. Under this collaboration, we and Genmab are co-funding all development costs for TIVDAK. In October 2020, we and Genmab entered into a joint commercialization agreement to govern the global commercialization of TIVDAK: • • In the U.S., we and Genmab co-promote TIVDAK. We record sales of TIVDAK in the U.S. and are responsible for leading U.S. distribution activities. The companies will each maintain 50% of the sales representatives and medical science liaisons, equally share those and certain other costs associated with commercializing TIVDAK in the U.S., and equally share in any profits realized in the U.S. Outside the U.S., we have commercialization rights in the rest of the world except for Japan, where Genmab has commercialization rights. In Europe, China, and Japan, we and Genmab will equally share 50% of the costs associated with commercializing TIVDAK as well as any profits realized in these markets. In markets outside the U.S. other than Europe, China, and Japan, aside from certain costs specified in the agreement, we will be solely responsible for all costs associated with commercializing TIVDAK, and will pay Genmab a royalty based on a percentage of aggregate net sales ranging from the mid-teens to mid-twenties. Under the joint commercialization agreement, we are responsible for overseeing the clinical and commercial manufacturing of TIVDAK. Either party may terminate the collaboration agreement or the joint commercialization agreement if the other party becomes insolvent or materially breaches the applicable 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. The opt out provisions of the collaboration agreement may also be applied to the joint commercialization agreement. In addition, Genmab may elect to opt out of co-promotion of TIVDAK in the United States by providing us with prior written notice. RemeGen Disitamab Vedotin License Agreement In September 2021, we and RemeGen entered into an exclusive worldwide licensing agreement to develop and commercialize disitamab vedotin, a novel HER2-targeted ADC. Under the terms of the agreement, we made a $200.0 million upfront payment to obtain exclusive license rights to disitamab vedotin for global development and commercialization, outside of RemeGen’s territory. RemeGen retains development and commercialization rights for Asia, excluding Japan and Singapore. We will lead global development and RemeGen will fund and operationalize the portion of global clinical trials attributable to its territory. RemeGen will also be responsible for all clinical development and regulatory submissions specific to its territory. We will pay RemeGen up to $195.0 million in potential milestone payments across multiple indications and products based upon the achievement of specified development goals, and up to $2.2 billion in potential milestone payments based on the achievement of specified regulatory and commercialization goals. RemeGen will be entitled to a tiered, high single digit to mid-teen percentage royalty based on net sales of disitamab vedotin in our territory. The agreement will remain in effect, unless earlier terminated, until the expiration, on a country-by-country and product-by-product basis, of the applicable royalty term, at which point the license for such product shall become fully paid-up, royalty-free, perpetual, irrevocable and non-exclusive in such country. The agreement also contains customary provisions for termination including by us for convenience, by either party in the event of breach of the agreement, subject to cure, upon a challenge of a party’s licensed patents or upon the other party’s bankruptcy. RemeGen has standard reversion rights in connection with certain early termination events. 14 15 Merck LV Collaboration In-license Agreements In September 2020, we entered into the LV Agreement with Merck. Under the terms of the LV Agreement, we granted Merck a co-exclusive worldwide development and commercialization license for LV and agreed to jointly develop and commercialize LV on a worldwide basis. We received an upfront cash payment of $600.0 million, and we are eligible to receive up to $850.0 million in milestone payments upon the initiation of certain clinical trials and regulatory approval in certain major markets, and up to an additional $1.8 billion in milestone payments upon the achievement of specified annual global net sales thresholds. Each company is responsible for 50% of global costs to develop and commercialize LV and will receive 50% of potential future profits. We will lead regulatory and distribution activities, and will record sales, in the United States and Canada. Merck will lead regulatory activities in Europe, and we will lead distribution activities and record sales in Europe. We and Merck will co-commercialize LV in the United States and Europe. Merck will lead regulatory, promotion and distribution activities, and will record sales, in countries outside of the United States, Canada and Europe. The LV Agreement will remain in effect, unless earlier terminated, until LV is no longer being developed or commercialized under the LV Agreement. The LV Agreement also contains customary provisions for termination by Merck for convenience, and by either party, including in the event of breach of the LV Agreement, subject to cure, or upon a challenge of such party’s licensed patents or upon the other party’s bankruptcy, subject, in each case, to customary reversion rights. In connection with the LV Agreement, we entered into a stock purchase agreement with Merck in September 2020, referred to as the Purchase Agreement, pursuant to which we agreed to issue and sell, and Merck agreed to purchase 5,000,000 newly-issued shares of our common stock, at a purchase price of $200 per share, for an aggregate purchase price of $1.0 billion. We closed the transactions contemplated by the Purchase Agreement in October 2020. 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. In August 2020, GlaxoSmithKline plc, or GSK, received accelerated approval from the FDA and conditional marketing authorization from the EC for Blenrep™ (belantamab mafodotin-blmf), an ADC developed by GSK that uses our technology, for treatment of patients with relapsed or refractory multiple myeloma who have received at least four prior therapies including an anti-CD38 monoclonal antibody, a proteasome inhibitor and an immunomodulatory agent. Under our ADC license agreements with Genentech and GSK, these events triggered milestone payments to us and we are also entitled receive royalties on net sales of Polivy and Blenrep worldwide. The product candidates being developed under our other ADC license agreements are at various stages of clinical and preclinical development. Our ability to generate meaningful future revenues from our other 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, if any. 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 were required to pay royalties in the low single digits on net sales of products, including ADCETRIS, which incorporate various technologies owned by BMS. Our obligation to pay royalties on ADCETRIS under the agreement expired in August 2021. • 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 ADCETRIS. The term of the license agreement expired in August 2021, upon which we have in perpetuity a fully paid-up, royalty free, nonexclusive, sublicensable license. • Array BioPharma, Inc. We are a party to a license agreement with 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 TUKYSA. We will pay Array a portion of any non-royalty payments received from sublicensing TUKYSA rights, including non-royalty payments received from Merck pursuant to the TUKYSA Agreement. Array is also entitled to receive a low double-digit royalty based on net sales of TUKYSA by us and a single-digit royalty based on any net sales of TUKYSA by our sublicensees, including Merck. 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 TUKYSA within that country or 10 years after the first commercial sale of TUKYSA 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. 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 of certain approved products. Patents and Proprietary Technology Our owned and licensed patents and patent applications are directed to ADCETRIS, PADCEV, TUKYSA, TIVDAK, 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, TUKYSA, TIVDAK, disitamab vedotin and LV, we seek to work closely with our development partners to coordinate patent efforts, including patent application filings, prosecution, term extension, defense and enforcement. As our products and 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 2022 and 2031. 16 17 Merck LV Collaboration In-license Agreements In September 2020, we entered into the LV Agreement with Merck. Under the terms of the LV Agreement, we granted Merck a co-exclusive worldwide development and commercialization license for LV and agreed to jointly develop and commercialize LV on a worldwide basis. We received an upfront cash payment of $600.0 million, and we are eligible to receive up to $850.0 million in milestone payments upon the initiation of certain clinical trials and regulatory approval in certain major markets, and up to an additional $1.8 billion in milestone payments upon the achievement of specified annual global net sales thresholds. Each company is responsible for 50% of global costs to develop and commercialize LV and will receive 50% of potential future profits. We will lead regulatory and distribution activities, and will record sales, in the United States and Canada. Merck will lead regulatory activities in Europe, and we will lead distribution activities and record sales in Europe. We and Merck will co-commercialize LV in the United States and Europe. Merck will lead regulatory, promotion and distribution activities, and will record sales, in countries outside of the United States, Canada and Europe. The LV Agreement will remain in effect, unless earlier terminated, until LV is no longer being developed or commercialized under the LV Agreement. The LV Agreement also contains customary provisions for termination by Merck for convenience, and by either party, including in the event of breach of the LV Agreement, subject to cure, or upon a challenge of such party’s licensed patents or upon the other party’s bankruptcy, subject, in each case, to customary reversion rights. In connection with the LV Agreement, we entered into a stock purchase agreement with Merck in September 2020, referred to as the Purchase Agreement, pursuant to which we agreed to issue and sell, and Merck agreed to purchase 5,000,000 newly-issued shares of our common stock, at a purchase price of $200 per share, for an aggregate purchase price of $1.0 billion. We closed the transactions contemplated by the Purchase Agreement in October 2020. 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 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. In August 2020, GlaxoSmithKline plc, or GSK, received accelerated approval from the FDA and conditional marketing authorization from the EC for Blenrep™ (belantamab mafodotin-blmf), an ADC developed by GSK that uses our technology, for treatment of patients with relapsed or refractory multiple myeloma who have received at least four prior therapies including an anti-CD38 monoclonal antibody, a proteasome inhibitor and an immunomodulatory agent. Under our ADC license agreements with Genentech and GSK, these events triggered milestone payments to us and we are also entitled receive royalties on net sales of Polivy and Blenrep worldwide. The product candidates being developed under our other ADC license agreements are at various stages of clinical and preclinical development. Our ability to generate meaningful future revenues from our other 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, if any. 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 were required to pay royalties in the low single digits on net sales of products, including ADCETRIS, which incorporate various technologies owned by BMS. Our obligation to pay royalties on ADCETRIS under the agreement expired in August 2021. 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 ADCETRIS. The term of the license agreement expired in August 2021, upon which we have in perpetuity a fully paid-up, royalty free, nonexclusive, sublicensable license. Array BioPharma, Inc. We are a party to a license agreement with 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 TUKYSA. We will pay Array a portion of any non-royalty payments received from sublicensing TUKYSA rights, including non-royalty payments received from Merck pursuant to the TUKYSA Agreement. Array is also entitled to receive a low double-digit royalty based on net sales of TUKYSA by us and a single-digit royalty based on any net sales of TUKYSA by our sublicensees, including Merck. 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 TUKYSA within that country or 10 years after the first commercial sale of TUKYSA 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. 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 of certain approved products. Patents and Proprietary Technology commercialization of any product candidates under these agreements, which includes the achievement of the potential Our owned and licensed patents and patent applications are directed to ADCETRIS, PADCEV, TUKYSA, TIVDAK, 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, TUKYSA, TIVDAK, disitamab vedotin and LV, we seek to work closely with our development partners to coordinate patent efforts, including patent application filings, prosecution, term extension, defense and enforcement. As our products and 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 2022 and 2031. 16 17 • • • • • For PADCEV and our related ADC technology, we own, co-own or have licensed rights to fourteen patents in the United States and Europe that will expire between 2022 and 2031. Of these patents, we own or co-own twelve patents and have licensed rights to two patents. For TUKYSA, we have licensed rights to nine patents in the United States and Europe that will expire between 2024 and 2033. For TIVDAK and our related ADC technology, we own or have licensed rights to eleven patents in the United States and Europe that will expire between 2022 and 2036. Of these patents, we own five patents and have licensed rights to six patents. For disitamab vedotin and our related ADC technology, we own or have licensed rights to eight patents in the United States and Europe that will expire between 2022 and 2034. Of these patents, we own five patents and have licensed rights to three patents. For LV and our related ADC technology, we own or have licensed rights to nine patents in the United States and Europe that will expire between 2022 and 2032. Of these patents, we own eight patents and have licensed rights to one patent. 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. 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 our products or to commercialize our product candidates. Our challenges to patents of other organizations may not be successful, which may affect our ability to commercialize our products and 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 our products and 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 policy and agreements and those of our collaborators may not sufficiently protect our confidential information, or third parties may independently develop equivalent information. Government Regulation The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, pre-market approval, manufacture, marketing and distribution of biopharmaceutical products. These agencies and other regulatory agencies regulate research and development activities and the testing, approval, manufacture, quality control, safety, efficacy, labeling, storage, distribution, import, export, recordkeeping, 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 of a drug formulation and manufacture of the drug for clinical trials, and commercial sale, if 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 Biologics License Application, or BLA, or a New Drug Application, 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 development; approved; • • • • • • 18 19 • • • • • For PADCEV and our related ADC technology, we own, co-own or have licensed rights to fourteen patents in the United States and Europe that will expire between 2022 and 2031. Of these patents, we own or co-own twelve patents and have licensed rights to two patents. For TUKYSA, we have licensed rights to nine patents in the United States and Europe that will expire between 2024 and 2033. licensed rights to six patents. For TIVDAK and our related ADC technology, we own or have licensed rights to eleven patents in the United States and Europe that will expire between 2022 and 2036. Of these patents, we own five patents and have For disitamab vedotin and our related ADC technology, we own or have licensed rights to eight patents in the United States and Europe that will expire between 2022 and 2034. Of these patents, we own five patents and have licensed rights to three patents. For LV and our related ADC technology, we own or have licensed rights to nine patents in the United States and Europe that will expire between 2022 and 2032. Of these patents, we own eight patents and have licensed rights to one patent. 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. 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 our products or to commercialize our product candidates. Our challenges to patents of other organizations may not be successful, which may affect our ability to commercialize our products and 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 our products and 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 policy and agreements and those of our collaborators may not sufficiently protect our confidential information, or third parties may independently develop equivalent information. Government Regulation The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, pre-market approval, manufacture, marketing and distribution of biopharmaceutical products. These agencies and other regulatory agencies regulate research and development activities and the testing, approval, manufacture, quality control, safety, efficacy, labeling, storage, distribution, import, export, recordkeeping, 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 Biologics License Application, or BLA, or a New Drug Application, 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 18 19 • FDA review and approval of the BLA or NDA, which includes the product prescribing information, prior to any commercial sale. Clinical Trials Regulation in the U.S. The results of preclinical tests (which include laboratory evaluation as well as preclinical GLP studies to evaluate mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the 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 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. Approval Process in the U.S. 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. 20 21 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 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. Post-Approval Regulations in the U.S. 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 current Good Manufacturing Practices, or cGMP, 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. • FDA review and approval of the BLA or NDA, which includes the product prescribing information, prior to Drug or biologic products studied for their safety and effectiveness in treating serious or life-threatening diseases any commercial sale. Clinical Trials Regulation in the U.S. 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 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. Approval Process in the U.S. 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. 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. Post-Approval Regulations in the U.S. 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 current Good Manufacturing Practices, or cGMP, 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. 20 21 FDA Regulation of Companion Diagnostics Marketing Authorization Regulation in Europe Certain of our products and 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 the FDA’s Center for Drug Evaluation and Research and by the 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 our products and 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. Regulations 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 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 those countries and approval of the regulators of such countries or economic areas before we may market products in those countries or areas. For example, to commercialize TUKYSA in Europe, we need to comply with applicable European regulations. The approval requirements and processes can vary greatly, and the time required may be longer or shorter than that required for FDA approval. Requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement also vary greatly from place to place. 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 including with respect to post-marketing authorization studies, product manufacturing, advertising and promotion, on GCP, a system for the approval of clinical trials in the EU has been implemented through national legislation of the EU member states. Under this system, an applicant must obtain approval from the national competent 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 for each site has issued a favorable opinion. The clinical trial application 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 individual EU 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 was set to replace the Clinical Trials Directive 2001/20/EC. The new Clinical Trials Regulation (EU) No 536/2014 came into effect in January 2022 with a three-year transition period in which clinical trial sponsors will be able to choose among different submission pathways. Specifically, the new regulation, which is directly applicable in all EU 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. In the European Economic Area, which is comprised of the 27 member states of the EU plus Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a marketing authorization through one of the following procedures: centralized, mutual recognition, and decentralized. Under the centralized procedure, a single marketing authorization application is submitted to the CHMP, which then makes a recommendation to the 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 mutual recognition and decentralized procedures provide for mutual recognition of individual national approval decisions and are available for products that are not subject to the mandatory scope of the centralized procedure. The U.K., following its exit from the EU and EEA, and Switzerland conduct separate regulatory reviews of new drug applications. Until December 31st, 2022, the U.K. will also issue national approvals via “reliance route”, by recognizing the centralized EU approvals of new medicines. 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. An 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 may last 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 if, for example, 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 granting a 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 will be 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. Post-approval Regulation in Europe distribution, and safety reporting. In countries where we receive regulatory approvals, we are subject to a variety of post-authorization regulations, Various requirements apply to the manufacturing and placing of medicinal products on the EU market. 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 which are granted by the competent authorities of the individual 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. 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, 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 and impose limitations on promotional activities with healthcare professionals. 22 23 FDA Regulation of Companion Diagnostics Marketing Authorization Regulation in Europe Certain of our products and 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 the FDA’s Center for Drug Evaluation and Research and by the 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 our products and 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. Regulations 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 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 those countries and approval of the regulators of such countries or economic areas before we may market products in those countries or areas. For example, to commercialize TUKYSA in Europe, we need to comply with applicable European regulations. The approval requirements and processes can vary greatly, and the time required may be longer or shorter than that required for FDA approval. Requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement also vary greatly from place to place. 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 EU member states. Under this system, an applicant must obtain approval from the national competent 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 for each site has issued a favorable opinion. The clinical trial application 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 individual EU 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 was set to replace the Clinical Trials Directive 2001/20/EC. The new Clinical Trials Regulation (EU) No 536/2014 came into effect in January 2022 with a three-year transition period in which clinical trial sponsors will be able to choose among different submission pathways. Specifically, the new regulation, which is directly applicable in all EU 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. In the European Economic Area, which is comprised of the 27 member states of the EU plus Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a marketing authorization through one of the following procedures: centralized, mutual recognition, and decentralized. Under the centralized procedure, a single marketing authorization application is submitted to the CHMP, which then makes a recommendation to the 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 mutual recognition and decentralized procedures provide for mutual recognition of individual national approval decisions and are available for products that are not subject to the mandatory scope of the centralized procedure. The U.K., following its exit from the EU and EEA, and Switzerland conduct separate regulatory reviews of new drug applications. Until December 31st, 2022, the U.K. will also issue national approvals via “reliance route”, by recognizing the centralized EU approvals of new medicines. 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. An 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 may last 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 if, for example, 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 granting a 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 will be 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. Post-approval Regulation in Europe In countries where we receive regulatory approvals, we are subject to a variety of post-authorization regulations, including with respect to post-marketing authorization studies, product manufacturing, advertising and promotion, distribution, and safety reporting. Various requirements apply to the manufacturing and placing of medicinal products on the EU market. 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 which are granted by the competent authorities of the individual 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. 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, 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 and impose limitations on promotional activities with healthcare professionals. 22 23 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 surveillance, 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. Healthcare Regulation U.S. federal and state healthcare laws and regulations are also applicable to our business. If we fail to comply with these 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, regulations prohibiting off-label promotion activities, and 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, 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, 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. PPACA also 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. In addition, a criminal conviction for violation of the federal Anti-Kickback Statute requires mandatory exclusion from participation in federal healthcare programs. 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, 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. 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 as criminal 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, deferred prosecution agreements and/ or non-prosecution agreements that impose significant reporting and other burdens on the affected companies. 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. The federal transparency requirements under the Physician Payments Sunshine Act, created under PPACA and its implementing regulations, 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 information related to certain payments or other transfers of value provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners), 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,” as adjusted for inflation. 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 countries outside the United States, including Canada and the EU, 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 were 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 significant criminal, civil and administrative penalties, damages, fines, disgorgement, contractual damages, reputational harm, administrative burdens, 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. Anti-Corruption Legislation 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, generally prohibits paying, offering to pay, or authorizing 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. 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. As we continue to expand our footprint and activities internationally, our exposure to compliance risks under the FCPA and other similar laws will likewise increase. 24 25 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 surveillance, 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. Healthcare Regulation U.S. federal and state healthcare laws and regulations are also applicable to our business. If we fail to comply with these 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, regulations prohibiting off-label promotion activities, and 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, 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, 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. PPACA also 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. In addition, a criminal conviction for violation of the federal Anti-Kickback Statute requires mandatory exclusion from participation in federal healthcare programs. 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, 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. 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 as criminal 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, deferred prosecution agreements and/ or non-prosecution agreements that impose significant reporting and other burdens on the affected companies. 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. The federal transparency requirements under the Physician Payments Sunshine Act, created under PPACA and its implementing regulations, 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 information related to certain payments or other transfers of value provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners), 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,” as adjusted for inflation. 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 countries outside the United States, including Canada and the EU, 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 were 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 significant criminal, civil and administrative penalties, damages, fines, disgorgement, contractual damages, reputational harm, administrative burdens, 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. Anti-Corruption Legislation 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, generally prohibits paying, offering to pay, or authorizing 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. 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. As we continue to expand our footprint and activities internationally, our exposure to compliance risks under the FCPA and other similar laws will likewise increase. 24 25 Privacy and Security Laws There are also numerous privacy and data protection laws to which we are currently, and/or may in the future, be subject. In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, and consumer protection laws. The laws are not consistent, and states frequently amend existing laws, requiring attention to constantly changing regulatory requirements. For example, the California Consumer Privacy Act, or CCPA, became effective on January 1, 2020, and the California Privacy Rights Act, or CPRA, will take effect in January 2023 (with a look back for certain rights to January 2022). The CPRA will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information. We may also be subject to additional U.S. privacy regulations in the future, including the Virginia Consumer Data Protection Act and the Colorado Privacy Act, both of which become effective in 2023. In addition, at the federal level, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations impose additional obligations on certain types of individuals and entities with respect to the security, privacy and transmission of individually identifiable health information. EU member countries and other jurisdictions, including Switzerland, the United Kingdom and Canada, have also adopted data protection laws and regulations which impose significant compliance obligations. For example, the EU’s General Data Protection Regulation, or GDPR, imposes a range of requirements relating to the collection, use, handling and protection of personal data. Violations of the GDPR can result in significant penalties, including potential fines of up to €20 million or 4% of the annual global revenues of the non-compliant company, whichever is greater. The GDPR has increased our responsibility and potential liability in relation to all types of personal data that we process, including clinical trial data and employee information. In addition, local data protection authorities can have different interpretations of the GDPR, leading to compliance challenges as a result of potential inconsistencies amongst various EU member states. Among other requirements, the GDPR regulates transfers of personal data to countries that have not been found to provide adequate protection to such personal data, including the U.S. This includes transfers between us and our subsidiaries. In July 2020, the Court of Justice of the EU, or the CJEU, invalidated one of the primary safeguards enabling U.S. companies to import personal information from Europe, the EU-U.S. Privacy Shield. The same decision also raised questions about whether one of the primary alternatives to the EU-U.S. Privacy Shield, namely, the EC’s Standard Contractual Clauses, or SCCs, provide sufficient protection for personal data transfers without analyzing each transfer and implementing supplementary measures to protect the data. As a result of the CJEU’s decision, the EC issued new SCCs in June 2021 that repeal and replace the previous clauses. Companies relying on the SCCs for transfers have until December 2022 to implement the new clauses. Following recommendations from the European Data Protection Board, we are reviewing personal data transfers from the EU and adding the new SCCs and supplementary measures, when required. Since local data protection authorities can interpret GDPR and the CJEU’s decision differently, there is no definitive set of controls that can ensure GDPR compliance across our business operations. In addition, authorities in Switzerland and the United Kingdom, whose data protection laws are similar to those of the EU, also invalidated the use of privacy shields. Additional compliance efforts may be needed to respond to evolving regulatory guidance. If our compliance solutions are found to be insufficient, we could face substantial fines under European data protection laws as well as injunctions against processing and/or transferring personal information from Europe. The inability to import personal information from Europe could restrict our clinical trial activities in Europe, limit our ability to collaborate with contract research organizations, service providers, contractors and other companies subject to European data protection laws, interfere with our ability to hire employees in Europe and require us to increase our data processing capabilities in Europe at significant expense. In addition, we may be subject to other foreign data privacy and security laws. For example, China’s Personal Information Protection Law, or PIPL, which took effect in November 2021, imposes various requirements related to personal information processing, similar to the GDPR and CCPA. In particular, the PIPL sets out personal information localization requirements, along with rules regarding the transfer of personal information outside of China. Such transfers may require assessment and/or approval by China’s Cyberspace Administration, certification by professional institutions or entering into contracts with and supervising overseas recipients. Violations of the PIPL may lead to an administrative fine of up to RMB 50 million or 5% of turnover in the last year. Any failure or alleged failure to comply with legal or contractual obligations, policies and industry standards relating to personal information, and any incident resulting in the unauthorized access to, or acquisition, release or transfer of, personal information, may result in governmental investigations or enforcement actions, litigation, fines, penalties, damage to our reputation and other adverse consequences. In addition, we expect that laws, regulations, policies and industry standards relating to privacy and data protection will continue to evolve. These changes may require us to modify our practices and may increase our costs of doing business. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards that may legally or contractually apply to us. If we fail to follow these standards, even if no personal information is compromised, we may incur significant fines or experience a significant increase in costs. Coverage and Reimbursement Sales of our current and any future approved products will depend, in 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. 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 the governments of other countries 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 therapeutic 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, they may do so at an insufficient level of payment. 26 27 Privacy and Security Laws There are also numerous privacy and data protection laws to which we are currently, and/or may in the future, be subject. In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, and consumer protection laws. The laws are not consistent, and states frequently amend existing laws, requiring attention to constantly changing regulatory requirements. For example, the California Consumer Privacy Act, or CCPA, became effective on January 1, 2020, and the California Privacy Rights Act, or CPRA, will take effect in January 2023 (with a look back for certain rights to January 2022). The CPRA will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information. We may also be subject to additional U.S. privacy regulations in the future, including the Virginia Consumer Data Protection Act and the Colorado Privacy Act, both of which become effective in 2023. In addition, at the federal level, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations impose additional obligations on certain types of individuals and entities with respect to the security, privacy and transmission of individually identifiable health information. EU member countries and other jurisdictions, including Switzerland, the United Kingdom and Canada, have also adopted data protection laws and regulations which impose significant compliance obligations. For example, the EU’s General Data Protection Regulation, or GDPR, imposes a range of requirements relating to the collection, use, handling and protection of personal data. Violations of the GDPR can result in significant penalties, including potential fines of up to €20 million or 4% of the annual global revenues of the non-compliant company, whichever is greater. The GDPR has increased our responsibility and potential liability in relation to all types of personal data that we process, including clinical trial data and employee information. In addition, local data protection authorities can have different interpretations of the GDPR, leading to compliance challenges as a result of potential inconsistencies amongst various EU member states. Among other requirements, the GDPR regulates transfers of personal data to countries that have not been found to provide adequate protection to such personal data, including the U.S. This includes transfers between us and our subsidiaries. In July 2020, the Court of Justice of the EU, or the CJEU, invalidated one of the primary safeguards enabling U.S. companies to import personal information from Europe, the EU-U.S. Privacy Shield. The same decision also raised questions about whether one of the primary alternatives to the EU-U.S. Privacy Shield, namely, the EC’s Standard Contractual Clauses, or SCCs, provide sufficient protection for personal data transfers without analyzing each transfer and implementing supplementary measures to protect the data. As a result of the CJEU’s decision, the EC issued new SCCs in June 2021 that repeal and replace the previous clauses. Companies relying on the SCCs for transfers have until December 2022 to implement the new clauses. Following recommendations from the European Data Protection Board, we are reviewing personal data transfers from the EU and adding the new SCCs and supplementary measures, when required. Since local data protection authorities can interpret GDPR and the CJEU’s decision differently, there is no definitive set of controls that can ensure GDPR compliance across our business operations. In addition, authorities in Switzerland and the United Kingdom, whose data protection laws are similar to those of the EU, also invalidated the use of privacy shields. Additional compliance efforts may be needed to respond to evolving regulatory guidance. If our compliance solutions are found to be insufficient, we could face substantial fines under European data protection laws as well as injunctions against processing and/or transferring personal information from Europe. The inability to import personal information from Europe could restrict our clinical trial activities in Europe, limit our ability to collaborate with contract research organizations, service providers, contractors and other companies subject to European data protection laws, interfere with our ability to hire employees in Europe and require us to increase our data processing capabilities in Europe at significant expense. In addition, we may be subject to other foreign data privacy and security laws. For example, China’s Personal Information Protection Law, or PIPL, which took effect in November 2021, imposes various requirements related to personal information processing, similar to the GDPR and CCPA. In particular, the PIPL sets out personal information localization requirements, along with rules regarding the transfer of personal information outside of China. Such transfers may require assessment and/or approval by China’s Cyberspace Administration, certification by professional institutions or entering into contracts with and supervising overseas recipients. Violations of the PIPL may lead to an administrative fine of up to RMB 50 million or 5% of turnover in the last year. Any failure or alleged failure to comply with legal or contractual obligations, policies and industry standards relating to personal information, and any incident resulting in the unauthorized access to, or acquisition, release or transfer of, personal information, may result in governmental investigations or enforcement actions, litigation, fines, penalties, damage to our reputation and other adverse consequences. In addition, we expect that laws, regulations, policies and industry standards relating to privacy and data protection will continue to evolve. These changes may require us to modify our practices and may increase our costs of doing business. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards that may legally or contractually apply to us. If we fail to follow these standards, even if no personal information is compromised, we may incur significant fines or experience a significant increase in costs. Coverage and Reimbursement Sales of our current and any future approved products will depend, in 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. 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 the governments of other countries 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 therapeutic 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, they may do so at an insufficient level of payment. 26 27 Many of the patients in the U.S. who seek treatment with our products 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. Federal budget decisions have reduced Medicare payment rates, and future budget decisions may reduce Medicare payment rates again. 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 our products available to authorized users of the Federal Supply Schedule of the General Services Administration. This requires compliance with additional laws and requirements, including offering our products 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 our products to these entities. Policies governing drug pricing vary widely from country to country. In many European countries, authorities regulate the pricing of a pharmaceutical product at launch or subsequent to launch through direct price controls such as international reference pricing. In addition, in many European countries, pharmaceutical products are funded largely by the national healthcare systems. As a result, patients are unlikely to use a pharmaceutical product that is not reimbursed by the national authorities. There can be no assurance as to the pricing and/or level of reimbursement that may be available for our products in countries with pricing and reimbursement policies in place at the national level. Health Technology Assessment, or HTA, of pharmaceutical products is becoming an increasingly common part of the pricing and reimbursement procedures in EU member states. The HTA process, which is governed by the national laws of the applicable country, aims to measure the added value of a new health technology compared to existing ones by assessing its public health impact, therapeutic impact and economic and societal impact in the context and setting of the individual country’s national healthcare system. HTA generally focuses on the clinical efficacy and effectiveness, safety, cost and cost-effectiveness of individual pharmaceutical products in comparison to the local standard of care, as well as their potential implications for the healthcare system. The outcome of HTA regarding specific medicinal products will often influence the pricing and reimbursement status granted to these pharmaceutical 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 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 affected the pharmaceutical industry. 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. 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. 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, due to subsequent legislative action, will remain in effect through 2031, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 and a temporary cut in the amount of the reduction from April 1 through June 30 2022, 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, the Drug Supply Chain Security Act, or DSCSA, was enacted with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United States, including most biological products. The DSCSA mandates phased-in and resource-intensive obligations for pharmaceutical manufacturers, wholesale distributors, and dispensers over a 10-year period that is expected to culminate in November 2023. As described above in "Coverage and Reimbursement", federal and state legislatures, governments in countries outside the U.S., health agencies and third-party payors continue to focus on containing the cost of healthcare. Legislative and regulatory changes and increasing pressure from social sources are likely to further influence the manner in which our products are priced, prescribed, purchased and reimbursed. For example, the federal government has implemented reforms to government healthcare programs in the U.S., including changes to the methods for, and amounts of, Medicare reimbursement and changes to the Medicaid Drug Rebate Program. On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. Proposed changes to the Medicare Part B program requiring rebates for discarded drug products could increase potential rebates. The Biden administration also recently announced an Executive Order that includes initiatives to support the implementation of Canadian drug importation and reduce drug prices. In response to President Biden’s Executive Order, on September 9, 2021, the U.S. Department of Health and Human Services released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. No legislation or administrative actions have been finalized to implement these principles. In addition, Congress is considering drug pricing as part of other healthcare reform initiatives. Competition The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies and intense competition. 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. 28 29 Many of the patients in the U.S. who seek treatment with our products may be eligible for Medicare or Medicaid Healthcare Reform 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. Federal budget decisions have reduced Medicare payment rates, and future budget decisions may reduce Medicare payment rates again. 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 our products available to authorized users of the Federal Supply Schedule of the General Services Administration. This requires compliance with additional laws and requirements, including offering our products 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 our products to these entities. Policies governing drug pricing vary widely from country to country. In many European countries, authorities regulate the pricing of a pharmaceutical product at launch or subsequent to launch through direct price controls such as international reference pricing. In addition, in many European countries, pharmaceutical products are funded largely by the national healthcare systems. As a result, patients are unlikely to use a pharmaceutical product that is not reimbursed by the national authorities. There can be no assurance as to the pricing and/or level of reimbursement that may be available for our products in countries with pricing and reimbursement policies in place at the national level. Health Technology Assessment, or HTA, of pharmaceutical products is becoming an increasingly common part of the pricing and reimbursement procedures in EU member states. The HTA process, which is governed by the national laws of the applicable country, aims to measure the added value of a new health technology compared to existing ones by assessing its public health impact, therapeutic impact and economic and societal impact in the context and setting of the individual country’s national healthcare system. HTA generally focuses on the clinical efficacy and effectiveness, safety, cost and cost-effectiveness of individual pharmaceutical products in comparison to the local standard of care, as well as their potential implications for the healthcare system. The outcome of HTA regarding specific medicinal products will often influence the pricing and reimbursement status granted to these pharmaceutical 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 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. PPACA substantially changed the way healthcare is financed by both governmental and private insurers and significantly affected the pharmaceutical industry. 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. 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. 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, due to subsequent legislative action, will remain in effect through 2031, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 and a temporary cut in the amount of the reduction from April 1 through June 30 2022, 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, the Drug Supply Chain Security Act, or DSCSA, was enacted with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United States, including most biological products. The DSCSA mandates phased-in and resource-intensive obligations for pharmaceutical manufacturers, wholesale distributors, and dispensers over a 10-year period that is expected to culminate in November 2023. As described above in "Coverage and Reimbursement", federal and state legislatures, governments in countries outside the U.S., health agencies and third-party payors continue to focus on containing the cost of healthcare. Legislative and regulatory changes and increasing pressure from social sources are likely to further influence the manner in which our products are priced, prescribed, purchased and reimbursed. For example, the federal government has implemented reforms to government healthcare programs in the U.S., including changes to the methods for, and amounts of, Medicare reimbursement and changes to the Medicaid Drug Rebate Program. On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. Proposed changes to the Medicare Part B program requiring rebates for discarded drug products could increase potential rebates. The Biden administration also recently announced an Executive Order that includes initiatives to support the implementation of Canadian drug importation and reduce drug prices. In response to President Biden’s Executive Order, on September 9, 2021, the U.S. Department of Health and Human Services released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. No legislation or administrative actions have been finalized to implement these principles. In addition, Congress is considering drug pricing as part of other healthcare reform initiatives. Competition The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies and intense competition. 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. 28 29 Many of our competitors have significantly greater financial resources and expertise in research and development, With respect to TIVDAK, in October 2021, Merck’s pembrolizumab was approved in combination with manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approval and marketing than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. With respect to ADCETRIS, there are several other FDA approved drugs for its approved indications. BMS’s nivolumab and Merck’s pembrolizumab are approved for the treatment of certain patients with relapsed or refractory classical Hodgkin lymphoma, and Acrotech Biopharma’s pralatrexate and belinostat are approved for relapsed or refractory systemic anaplastic large cell lymphoma, or sALCL, among other T-cell lymphomas. Celgene's romidepsin is approved for cutaneous T-cell lymphoma. Kyowa Kirin’s mogamulizumab 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 conducted a phase 3 clinical trial in relapsed or refractory classical Hodgkin lymphoma comparing pembrolizumab to ADCETRIS. An interim analysis of this clinical trial demonstrated a statistically significant improvement in progression-free survival for pembrolizumab compared with ADCETRIS, resulting in a label expansion to an earlier line of therapy, and we expect increased competition from pembrolizumab in this indication. We are also aware of multiple investigational agents currently being studied that, if successful, may compete with ADCETRIS in the future, such as camidanlumab tesirine being studied in a phase 2 study in relapsed/refractory classical Hodgkin lymphoma. Merck is also conducting a phase 2 study in newly diagnosed classical Hodgkin lymphoma. 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 and chemotherapy, in addition to clinical trials with experimental agents. With respect to PADCEV, other treatments in pretreated metastatic urothelial cancer include sacituzumab govitecan (a Trop-2-directed antibody and topoisomerase inhibitor conjugate), checkpoint inhibitor monotherapy, generic chemotherapy and, for patients with select FGFR genetic alterations, Janssen’s erdafitinib. Front line metastatic urothelial cancer has traditionally been treated with chemotherapy alone but is evolving to include checkpoint inhibitors for cisplatin-ineligible patients with high PD-L1 expression in addition to patients who are ineligible for platinum therapy. Several trials of investigational agents in combination with chemotherapy or other novel agents are ongoing. Continued development of PD-(L)1 targeted therapies across early stage bladder cancer and in metastatic bladder cancer in frontline combinations with chemotherapy, in frontline maintenance with the recent approval of avelumab, and in pretreated disease, could potentially impact PADCEV usage and enrollment in PADCEV clinical trials. With respect to TUKYSA, there are multiple marketed products which target HER2, including the antibodies trastuzumab and pertuzumab and the antibody drug conjugate T-DM1. In addition, lapatinib is an EGFR/HER2 oral kinase inhibitor for the treatment of metastatic breast cancer, and neratinib is an irreversible pan-HER kinase inhibitor indicated for extended adjuvant treatment and treatment of metastatic breast cancer in patients who received two or more prior anti-HER2-based regimens. Daiichi Sankyo and AstraZeneca have fam-trastuzumab deruxtecan-nxki which was approved by the FDA for patients who have received two or more prior anti-HER2-based regimens in the metastatic breast cancer setting and recently in the HER2 positive gastric cancer setting. The agent was also granted conditional marketing authorization by the EMA for the treatment of adult patients with unresectable or metastatic HER2-positive breast cancer who have received two or more prior anti-HER2-based regimens. In addition, fam-trastuzumab deruxtecan- nxki is being reviewed by the FDA for use in 2nd line (i.e., in patients who previously received one anti-HER2 based regimen in the metastatic setting) based on the DESTINY-breast 03 trial results. If approved, the sequence of therapies patients receive in this condition is likely to change, with greater fam-trastuzumab deruxtecan-nxki use in 2nd line. This may pose increased competition for TUKYSA, which is approved by the FDA for patients who have received one or more prior anti-HER2-based regimens in the metastatic setting, including in patients with brain metastases. MacroGenics has a HER2 targeted, Fc-optimized antibody, margetuximab, which was recently approved by the FDA in patients who have received at least two previous anti-HER2 regimens. Additionally, Byondis has an antibody drug conjugate, SYD985, and recently released results from its pivotal trial in metastatic breast cancer patients treated with multiple anti- HER2-based regimens. Approval of SYD985 for this patient population may occur in 2022. chemotherapy, with or without bevacizumab, for the treatment of recurrent or metastatic cervical cancer whose tumors express PD-L1 and was grated full approval as a monotherapy for recurrent or metastatic cervical cancer patients 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 TIVDAK, including Agenus, BMS, Iovance Biotherapeutics, Merck, Regeneron Pharmaceuticals, Sanofi-Aventis and Roche. Cemiplimab is being reviewed in several countries outside the U.S. for the treatment of patients with recurrent or metastatic cervical cancer following progression on platinum-based chemotherapy. A supplemental Biologics License Application for cemiplimab was recently withdrawn in the U.S. 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. In addition, we are aware of a number of other companies that have ADC and other technologies that may be competitive with ours. 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, our ADC collaborators may develop compounds utilizing our technology that may compete with product candidates that we are developing. The risk of biosimilar or generic challenges has also been increasing in our industry. In the U.S. and the EU, after a period of exclusivity for an innovator’s approved biological product or branded drug has passed, there are abbreviated pathways for approval of biosimilar products or generic drugs. For example, in the U.S., 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. Similarly, in the EU, the EC has granted marketing authorizations for biosimilars pursuant to a set of general and product class-specific guidelines. In addition, it is not possible to predict changes in law that might reduce regulatory exclusivity. As a result, and due to uncertainties regarding patent protection, it is not possible to predict the length of market exclusivity for any particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. Absent patent protection or regulatory exclusivity for our products, it is possible, both in the United States and elsewhere, that biosimilar, interchangeable or generic versions of those products may be approved and marketed, which would likely result in substantial and rapid reductions in revenues from sales of those products. It is also possible that our competitors will succeed in developing technologies that are more effective than our products and product candidates or that would render our technology obsolete or noncompetitive, or will succeed in developing biosimilar, interchangeable or generic products for our products and 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 our products and product 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 advance our technology platforms; license additional technology; complete clinical trials which position our products for regulatory and commercial success; candidates. ability to: • • • 30 31 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. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. With respect to ADCETRIS, there are several other FDA approved drugs for its approved indications. BMS’s nivolumab and Merck’s pembrolizumab are approved for the treatment of certain patients with relapsed or refractory classical Hodgkin lymphoma, and Acrotech Biopharma’s pralatrexate and belinostat are approved for relapsed or refractory systemic anaplastic large cell lymphoma, or sALCL, among other T-cell lymphomas. Celgene's romidepsin is approved for cutaneous T-cell lymphoma. Kyowa Kirin’s mogamulizumab 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 conducted a phase 3 clinical trial in relapsed or refractory classical Hodgkin lymphoma comparing pembrolizumab to ADCETRIS. An interim analysis of this clinical trial demonstrated a statistically significant improvement in progression-free survival for pembrolizumab compared with ADCETRIS, resulting in a label expansion to an earlier line of therapy, and we expect increased competition from pembrolizumab in this indication. We are also aware of multiple investigational agents currently being studied that, if successful, may compete with ADCETRIS in the future, such as camidanlumab tesirine being studied in a phase 2 study in relapsed/refractory classical Hodgkin lymphoma. Merck is also conducting a phase 2 study in newly diagnosed classical Hodgkin lymphoma. 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 and chemotherapy, in addition to clinical trials with experimental agents. With respect to PADCEV, other treatments in pretreated metastatic urothelial cancer include sacituzumab govitecan (a Trop-2-directed antibody and topoisomerase inhibitor conjugate), checkpoint inhibitor monotherapy, generic chemotherapy and, for patients with select FGFR genetic alterations, Janssen’s erdafitinib. Front line metastatic urothelial cancer has traditionally been treated with chemotherapy alone but is evolving to include checkpoint inhibitors for cisplatin-ineligible patients with high PD-L1 expression in addition to patients who are ineligible for platinum therapy. Several trials of investigational agents in combination with chemotherapy or other novel agents are ongoing. Continued development of PD-(L)1 targeted therapies across early stage bladder cancer and in metastatic bladder cancer in frontline combinations with chemotherapy, in frontline maintenance with the recent approval of avelumab, and in pretreated disease, could potentially impact PADCEV usage and enrollment in PADCEV clinical trials. With respect to TUKYSA, there are multiple marketed products which target HER2, including the antibodies trastuzumab and pertuzumab and the antibody drug conjugate T-DM1. In addition, lapatinib is an EGFR/HER2 oral kinase inhibitor for the treatment of metastatic breast cancer, and neratinib is an irreversible pan-HER kinase inhibitor indicated for extended adjuvant treatment and treatment of metastatic breast cancer in patients who received two or more prior anti-HER2-based regimens. Daiichi Sankyo and AstraZeneca have fam-trastuzumab deruxtecan-nxki which was approved by the FDA for patients who have received two or more prior anti-HER2-based regimens in the metastatic breast cancer setting and recently in the HER2 positive gastric cancer setting. The agent was also granted conditional marketing authorization by the EMA for the treatment of adult patients with unresectable or metastatic HER2-positive breast cancer who have received two or more prior anti-HER2-based regimens. In addition, fam-trastuzumab deruxtecan- nxki is being reviewed by the FDA for use in 2nd line (i.e., in patients who previously received one anti-HER2 based regimen in the metastatic setting) based on the DESTINY-breast 03 trial results. If approved, the sequence of therapies patients receive in this condition is likely to change, with greater fam-trastuzumab deruxtecan-nxki use in 2nd line. This may pose increased competition for TUKYSA, which is approved by the FDA for patients who have received one or more prior anti-HER2-based regimens in the metastatic setting, including in patients with brain metastases. MacroGenics has a HER2 targeted, Fc-optimized antibody, margetuximab, which was recently approved by the FDA in patients who have received at least two previous anti-HER2 regimens. Additionally, Byondis has an antibody drug conjugate, SYD985, and recently released results from its pivotal trial in metastatic breast cancer patients treated with multiple anti- HER2-based regimens. Approval of SYD985 for this patient population may occur in 2022. With respect to TIVDAK, in October 2021, Merck’s pembrolizumab was approved in combination with chemotherapy, with or without bevacizumab, for the treatment of recurrent or metastatic cervical cancer whose tumors express PD-L1 and was grated full approval as a monotherapy for recurrent or metastatic cervical cancer patients 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 TIVDAK, including Agenus, BMS, Iovance Biotherapeutics, Merck, Regeneron Pharmaceuticals, Sanofi-Aventis and Roche. Cemiplimab is being reviewed in several countries outside the U.S. for the treatment of patients with recurrent or metastatic cervical cancer following progression on platinum-based chemotherapy. A supplemental Biologics License Application for cemiplimab was recently withdrawn in the U.S. 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. In addition, we are aware of a number of other companies that have ADC and other technologies that may be competitive with ours. 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, our ADC collaborators may develop compounds utilizing our technology that may compete with product candidates that we are developing. The risk of biosimilar or generic challenges has also been increasing in our industry. In the U.S. and the EU, after a period of exclusivity for an innovator’s approved biological product or branded drug has passed, there are abbreviated pathways for approval of biosimilar products or generic drugs. For example, in the U.S., 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. Similarly, in the EU, the EC has granted marketing authorizations for biosimilars pursuant to a set of general and product class-specific guidelines. In addition, it is not possible to predict changes in law that might reduce regulatory exclusivity. As a result, and due to uncertainties regarding patent protection, it is not possible to predict the length of market exclusivity for any particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. Absent patent protection or regulatory exclusivity for our products, it is possible, both in the United States and elsewhere, that biosimilar, interchangeable or generic versions of those products may be approved and marketed, which would likely result in substantial and rapid reductions in revenues from sales of those products. It is also possible that our competitors will succeed in developing technologies that are more effective than our products and product candidates or that would render our technology obsolete or noncompetitive, or will succeed in developing biosimilar, interchangeable or generic products for our products and 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 our products and 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; 30 31 • maintain a proprietary position in our technologies and products; PADCEV • • • • • • 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. Manufacturing We own a biologics manufacturing facility located in Bothell, Washington, which we use to support certain clinical and commercial supply needs, and have signed a lease to a facility currently being constructed in Everett, Washington, which will be used for future manufacturing capability. However, we rely and expect to continue to rely on collaborators, contract manufacturers and other third parties to produce and store sufficient quantities of drug product for both our clinical and commercial programs. While we believe that the existing supplies of our products and our and our collaborators’ contract manufacturing relationships will be sufficient to accommodate current clinical and commercial needs, we or our collaborators may need to obtain additional manufacturing arrangements or increase manufacturing capability to meet potential future commercial needs, which could require additional capital investment or cause delays. 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, 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 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. 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. Under the terms of our collaboration and commercialization agreements with Astellas, Astellas is responsible for overseeing the manufacturing supply chain for PADCEV. Accordingly, we rely on Astellas to provide commercial and clinical supply of 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. In addition, we are responsible for establishing a second source supply chain for PADCEV, whether through internal or third party sources. TUKYSA With respect to TUKYSA, we rely on multiple contract manufacturers and other third parties to perform manufacturing services for us including Sterling Pharma Solutions Limited, or Sterling, for production of the starting materials for TUKYSA, Esteve Quimica, S.A., or Esteve to produce the active pharmaceutical ingredient, Hovione FarmaCiencia SA, or Hovione, to complete spray drying and Corden Plankstadt, or Corden, to produce the tablets for TUKYSA. For the foreseeable future, we expect to continue to rely on contract manufacturers and other third parties to produce and store sufficient quantities of TUKYSA. We have limited prior experience as an organization manufacturing TUKYSA and small molecule drug products generally, and we have relatively new working relationships with many of the third party manufacturers involved in TUKYSA manufacture. Sterling. We have a commercial supply agreement with Sterling to manufacture starting materials for TUKYSA. The agreement provides that we will purchase starting materials pursuant to rolling forecasts and will purchase a minimum percentage of our requirements for the starting materials from Sterling. The agreement will remain in effect until 2025, after which it will continue automatically for up to two additional years subject to termination by either party giving written notice to the other party. Either party has the right to terminate the agreement if the other party commits any breach of the agreement and does not remedy, make a bona fide attempt to remedy or enter into negotiations to resolve, the breach after notice to do so, if capable of remedy. Esteve Quimica. Our commercial supply agreement with Esteve provides that we will order the active pharmaceutical agreement for TUKYSA pursuant to rolling forecasts. The agreement will remain in effect until 2025, after which it will automatically renew subject to termination by us by giving written notice to Esteve. Either party has the right to terminate the agreement if the other party fails to cure a material breach. Corden. We have a commercial supply agreement with Corden to produce TUKYSA tablets. The agreement provides that we will order pursuant to rolling forecasts and will purchase a minimum percentage of our requirements from Corden. The agreement will remain in effect until 2025, after which it will be renewed if not terminated with written notice prior to the expiration of the term. Either party has the right to terminate the agreement if the other party commits a breach and does not cure or commence and diligently continue actions to cure such default. Hovione. We have a commercial supply agreement with Hovione to manufacture the tucatinib spray-dried dispersion or drug product intermediate for TUKYSA. The agreement provides that we will order pursuant to rolling forecasts and will purchase a minimum percentage of our requirements from Hovione. The agreement will remain in effect until 2026, followed by successive automatic two-year renewals. Either party may terminate the agreement by written notice prior to commencement of the applicable renewal term. In addition, either party has the right to terminate the agreement if the other party breaches the agreement and does not remedy the breach after written notice or if the occurrence of a force majeure event prevents the other party from performing its obligations under the agreement. TIVDAK We also rely on multiple contract manufacturers and other third parties to perform manufacturing services for us with respect to TIVDAK. For the foreseeable future, we expect to continue to rely on contract manufacturers and other third parties to produce and store sufficient quantities of TIVDAK. Our Product Candidates with respect to our product candidates. We also rely on multiple contract manufacturers and other third parties to perform manufacturing services for us 32 33 • • • • • • and candidates. Manufacturing enter into additional collaborations to advance the development and commercialization of our product We own a biologics manufacturing facility located in Bothell, Washington, which we use to support certain clinical and commercial supply needs, and have signed a lease to a facility currently being constructed in Everett, Washington, which will be used for future manufacturing capability. However, we rely and expect to continue to rely on collaborators, contract manufacturers and other third parties to produce and store sufficient quantities of drug product for both our clinical and commercial programs. While we believe that the existing supplies of our products and our and our collaborators’ contract manufacturing relationships will be sufficient to accommodate current clinical and commercial needs, we or our collaborators may need to obtain additional manufacturing arrangements or increase manufacturing capability to meet potential future commercial needs, which could require additional capital investment or cause delays. 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, 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 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. 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. • maintain a proprietary position in our technologies and products; PADCEV 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; Under the terms of our collaboration and commercialization agreements with Astellas, Astellas is responsible for overseeing the manufacturing supply chain for PADCEV. Accordingly, we rely on Astellas to provide commercial and clinical supply of 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. In addition, we are responsible for establishing a second source supply chain for PADCEV, whether through internal or third party sources. 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; TUKYSA With respect to TUKYSA, we rely on multiple contract manufacturers and other third parties to perform manufacturing services for us including Sterling Pharma Solutions Limited, or Sterling, for production of the starting materials for TUKYSA, Esteve Quimica, S.A., or Esteve to produce the active pharmaceutical ingredient, Hovione FarmaCiencia SA, or Hovione, to complete spray drying and Corden Plankstadt, or Corden, to produce the tablets for TUKYSA. For the foreseeable future, we expect to continue to rely on contract manufacturers and other third parties to produce and store sufficient quantities of TUKYSA. We have limited prior experience as an organization manufacturing TUKYSA and small molecule drug products generally, and we have relatively new working relationships with many of the third party manufacturers involved in TUKYSA manufacture. Sterling. We have a commercial supply agreement with Sterling to manufacture starting materials for TUKYSA. The agreement provides that we will purchase starting materials pursuant to rolling forecasts and will purchase a minimum percentage of our requirements for the starting materials from Sterling. The agreement will remain in effect until 2025, after which it will continue automatically for up to two additional years subject to termination by either party giving written notice to the other party. Either party has the right to terminate the agreement if the other party commits any breach of the agreement and does not remedy, make a bona fide attempt to remedy or enter into negotiations to resolve, the breach after notice to do so, if capable of remedy. Esteve Quimica. Our commercial supply agreement with Esteve provides that we will order the active pharmaceutical agreement for TUKYSA pursuant to rolling forecasts. The agreement will remain in effect until 2025, after which it will automatically renew subject to termination by us by giving written notice to Esteve. Either party has the right to terminate the agreement if the other party fails to cure a material breach. Corden. We have a commercial supply agreement with Corden to produce TUKYSA tablets. The agreement provides that we will order pursuant to rolling forecasts and will purchase a minimum percentage of our requirements from Corden. The agreement will remain in effect until 2025, after which it will be renewed if not terminated with written notice prior to the expiration of the term. Either party has the right to terminate the agreement if the other party commits a breach and does not cure or commence and diligently continue actions to cure such default. Hovione. We have a commercial supply agreement with Hovione to manufacture the tucatinib spray-dried dispersion or drug product intermediate for TUKYSA. The agreement provides that we will order pursuant to rolling forecasts and will purchase a minimum percentage of our requirements from Hovione. The agreement will remain in effect until 2026, followed by successive automatic two-year renewals. Either party may terminate the agreement by written notice prior to commencement of the applicable renewal term. In addition, either party has the right to terminate the agreement if the other party breaches the agreement and does not remedy the breach after written notice or if the occurrence of a force majeure event prevents the other party from performing its obligations under the agreement. TIVDAK We also rely on multiple contract manufacturers and other third parties to perform manufacturing services for us with respect to TIVDAK. For the foreseeable future, we expect to continue to rely on contract manufacturers and other third parties to produce and store sufficient quantities of TIVDAK. Our Product Candidates We also rely on multiple contract manufacturers and other third parties to perform manufacturing services for us with respect to our product candidates. 32 33 Commercial Operations We have allocated commercial resources, including sales, marketing, supply chain management and reimbursement capabilities, to commercialize ADCETRIS and PADCEV in the U.S. and Canada, TUKYSA in the U.S., Europe and Canada, and TIVDAK in the U.S. We believe the markets for our products in their approved indications are addressable with a targeted sales and marketing organization. We intend to continue promoting our products in our territories for their current indications and any additional indications we may obtain in the future. Astellas jointly commercializes PADCEV with us in the U.S. In addition, Genmab jointly commercializes TIVDAK with us in the U.S. In the U.S., we sell ADCETRIS, PADCEV, TUKYSA, and TIVDAK through a limited number of specialty distributors. 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 net product sales in 2021, 2020 and 2019. Healthcare providers purchase ADCETRIS, PADCEV, TUKYSA, and TIVDAK through these specialty distributors and the product is drop shipped directly to the healthcare provider. In addition to specialty distributors, we also sell TUKYSA to a limited number of specialty pharmacies. ADCETRIS, PADCEV and TIVDAK are infused products and generally shipped directly to healthcare providers and facilities for administration to patients. TUKYSA is an oral product ordered by prescription and typically dispensed to patients by the network specialty pharmacies, at physician in-office dispensing sites, or by hospital/Integrated Delivery Network pharmacies. In Europe, we have allocated commercial resources, including sales, marketing, supply chain management, and reimbursement capabilities to enable and execute launches across key markets in Europe. Hospitals in Europe can purchase TUKYSA directly from Seagen or indirectly from wholesale distributors. In European countries where we have not established our own sales force, TUKYSA can be accessed through distribution partners. Human Capital Resources As of December 31, 2021, we had 2,675 employees. Of these employees, 1,586 were engaged in or support research, clinical, and supply chain management activities, 511 were in administrative and business-related positions, and 578 were in sales and marketing. We consider our employee relations to be good. Diversity, Equity and Inclusion We believe that fostering diversity, equity, and inclusion is a key element to discovering, developing, and bringing transformative therapies to patients with cancer. As of the end of 2021, 58% of our global workforce and 39% of our leadership (at the executive director level and above) were female. In addition, as of the end of 2021, 34% of our U.S. workforce and 33% of our U.S. leadership (at the executive director level and above) were racially or ethnically diverse. We strive to build a workforce representative of the people we serve and to nurture an inclusive culture where all voices are welcomed, heard, and respected. In 2021, we adopted additional initiatives to further build our capacity to meet our diversity, equity and inclusion goals. Recruiting and Retention We believe that we have been successful in attracting and retaining talented personnel to support our expanding business, though competition for personnel in our industry is intense. We monitor recruiting efforts using a variety of metrics such as internal placement rates, cycle times, cost per hire, information on the retention of business-critical hires (such as medical directors and executives), and the percentage of budgeted openings filled on time and on budget. We also track voluntary and involuntary turnover rates for the company as a whole, for business-critical talent and by gender, race or ethnicity, time in role and job level. Compensation and Benefits We offer competitive pay and benefits designed to attract and retain exceptional talent and drive company performance. In setting appropriate compensation levels, we look at the average base pay rate for each position based on market data. At the time of our last completed annual compensation review, effective February 2021, for regular employees who were eligible for a pay increase, the average ratio of base pay to this market rate was 100%. We also offer an annual cash incentive program, a sales incentive program and long-term equity incentive plans designed to assist in attracting, retaining and motivating employees and promoting the creation of long-term value for stockholders. Our standard employee benefits in the U.S. include paid and unpaid leaves, medical, dental and vision insurance coverage, a 401(k) plan, short- and long-term disability, life insurance, flexible spending accounts and an employee stock purchase plan. We also offer a variety of voluntary benefits that allow employees to select options that meet their needs, including telehealth, an employee assistance program, backup childcare, adoption assistance, a travel solution for nursing mothers, education assistance, fitness reimbursements, and wellness programs. We benchmark our benefits program against others in our industry on an annual basis. Succession Planning and Leadership Development We establish retention plans for our executives and other business-critical talent and review their total compensation and unvested equity annually. Succession, development, and retention plans for our executive officers are reviewed at the Board level. In addition, we hold company-wide talent-planning reviews both at the executive and departmental levels. To help accelerate the development of leaders across the company, we have established the Seagen Leadership Academy, a program that provides training, leadership opportunities, mentorship and support to high- potential talent at the director level and above. COVID-19 We are continuing to closely monitor the impact of the evolving effects of the COVID-19 pandemic on our business. We have a cross-functional COVID-19 working group, which meets periodically to discuss policies and protocols, strategic planning, business continuity, and other matters relating to the pandemic. We are continuing to take proactive steps designed to protect the health and safety of our workforce, patients, and healthcare professionals, and to continue our business operations so we can advance our goal of bringing important medicines to patients. Earlier in the pandemic, we instituted a mandatory work-from-home policy for employees who could perform their jobs offsite, but continued our essential research, manufacturing, and laboratory activities on site. More recently, we began to allow additional U.S. office-based employees who have been fully vaccinated to return to the office on a voluntary and limited basis. We maintain a number of precautionary measures designed to protect our on-site employees, such as enhanced facilities cleaning, lower concentrations of staff, contact tracing and making testing available. We also monitor the progress of our essential onsite activities for impacts relating to the COVID-19 pandemic. After pausing most in-person customer interactions in healthcare settings earlier in the pandemic, our field-based personnel are now using a mix of in- person interactions and electronic communications, such as emails, phone calls and video conferences, to support healthcare providers and patients. We believe that the measures we have implemented are appropriate and are helping to reduce transmission of COVID-19, and we will continue to monitor conditions and related guidance from governmental authorities and adjust our activities as appropriate. For information regarding the impacts related to the COVID-19 pandemic on our ability and the ability of our collaborators to effectively market, sell and distribute our products and to develop our products and product candidates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Overview—Outlook” in Part II Item 7 of this Annual Report on Form 10-K. Corporate Information We were incorporated in Delaware on July 15, 1997, as Seattle Genetics, Inc. In October 2020, we changed our corporate name from Seattle Genetics, Inc. to Seagen Inc., reflecting the global expansion of our operations. 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.seagen.com. Seagen®, ADCETRIS®, PADCEV®, TUKYSA® and TIVDAK® are our registered trademarks in the United States. All other trademarks, tradenames and service marks included in this Annual Report on Form 10-K are the property of their respective owners. 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.seagen.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. 34 35 Commercial Operations We have allocated commercial resources, including sales, marketing, supply chain management and reimbursement capabilities, to commercialize ADCETRIS and PADCEV in the U.S. and Canada, TUKYSA in the U.S., Europe and Canada, and TIVDAK in the U.S. We believe the markets for our products in their approved indications are addressable with a targeted sales and marketing organization. We intend to continue promoting our products in our territories for their current indications and any additional indications we may obtain in the future. Astellas jointly Our standard employee benefits in the U.S. include paid and unpaid leaves, medical, dental and vision insurance coverage, a 401(k) plan, short- and long-term disability, life insurance, flexible spending accounts and an employee stock purchase plan. We also offer a variety of voluntary benefits that allow employees to select options that meet their needs, including telehealth, an employee assistance program, backup childcare, adoption assistance, a travel solution for nursing mothers, education assistance, fitness reimbursements, and wellness programs. We benchmark our benefits program against others in our industry on an annual basis. commercializes PADCEV with us in the U.S. In addition, Genmab jointly commercializes TIVDAK with us in the U.S. Succession Planning and Leadership Development In the U.S., we sell ADCETRIS, PADCEV, TUKYSA, and TIVDAK through a limited number of specialty distributors. 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 net product sales in 2021, 2020 and 2019. Healthcare providers purchase ADCETRIS, PADCEV, TUKYSA, and TIVDAK through these specialty distributors and the product is drop shipped directly to the healthcare provider. In addition to specialty distributors, we also sell TUKYSA to a limited number of specialty pharmacies. We establish retention plans for our executives and other business-critical talent and review their total compensation and unvested equity annually. Succession, development, and retention plans for our executive officers are reviewed at the Board level. In addition, we hold company-wide talent-planning reviews both at the executive and departmental levels. To help accelerate the development of leaders across the company, we have established the Seagen Leadership Academy, a program that provides training, leadership opportunities, mentorship and support to high- potential talent at the director level and above. ADCETRIS, PADCEV and TIVDAK are infused products and generally shipped directly to healthcare providers COVID-19 and facilities for administration to patients. TUKYSA is an oral product ordered by prescription and typically dispensed to patients by the network specialty pharmacies, at physician in-office dispensing sites, or by hospital/Integrated Delivery Network pharmacies. In Europe, we have allocated commercial resources, including sales, marketing, supply chain management, and reimbursement capabilities to enable and execute launches across key markets in Europe. Hospitals in Europe can purchase TUKYSA directly from Seagen or indirectly from wholesale distributors. In European countries where we have not established our own sales force, TUKYSA can be accessed through distribution partners. Human Capital Resources Diversity, Equity and Inclusion As of December 31, 2021, we had 2,675 employees. Of these employees, 1,586 were engaged in or support research, clinical, and supply chain management activities, 511 were in administrative and business-related positions, and 578 were in sales and marketing. We consider our employee relations to be good. We believe that fostering diversity, equity, and inclusion is a key element to discovering, developing, and bringing transformative therapies to patients with cancer. As of the end of 2021, 58% of our global workforce and 39% of our leadership (at the executive director level and above) were female. In addition, as of the end of 2021, 34% of our U.S. workforce and 33% of our U.S. leadership (at the executive director level and above) were racially or ethnically diverse. We strive to build a workforce representative of the people we serve and to nurture an inclusive culture where all voices are welcomed, heard, and respected. In 2021, we adopted additional initiatives to further build our capacity to meet our diversity, equity and inclusion goals. Recruiting and Retention We believe that we have been successful in attracting and retaining talented personnel to support our expanding business, though competition for personnel in our industry is intense. We monitor recruiting efforts using a variety of metrics such as internal placement rates, cycle times, cost per hire, information on the retention of business-critical hires (such as medical directors and executives), and the percentage of budgeted openings filled on time and on budget. We also track voluntary and involuntary turnover rates for the company as a whole, for business-critical talent and by gender, race or ethnicity, time in role and job level. Compensation and Benefits We offer competitive pay and benefits designed to attract and retain exceptional talent and drive company performance. In setting appropriate compensation levels, we look at the average base pay rate for each position based on market data. At the time of our last completed annual compensation review, effective February 2021, for regular employees who were eligible for a pay increase, the average ratio of base pay to this market rate was 100%. We also offer an annual cash incentive program, a sales incentive program and long-term equity incentive plans designed to assist in attracting, retaining and motivating employees and promoting the creation of long-term value for stockholders. We are continuing to closely monitor the impact of the evolving effects of the COVID-19 pandemic on our business. We have a cross-functional COVID-19 working group, which meets periodically to discuss policies and protocols, strategic planning, business continuity, and other matters relating to the pandemic. We are continuing to take proactive steps designed to protect the health and safety of our workforce, patients, and healthcare professionals, and to continue our business operations so we can advance our goal of bringing important medicines to patients. Earlier in the pandemic, we instituted a mandatory work-from-home policy for employees who could perform their jobs offsite, but continued our essential research, manufacturing, and laboratory activities on site. More recently, we began to allow additional U.S. office-based employees who have been fully vaccinated to return to the office on a voluntary and limited basis. We maintain a number of precautionary measures designed to protect our on-site employees, such as enhanced facilities cleaning, lower concentrations of staff, contact tracing and making testing available. We also monitor the progress of our essential onsite activities for impacts relating to the COVID-19 pandemic. After pausing most in-person customer interactions in healthcare settings earlier in the pandemic, our field-based personnel are now using a mix of in- person interactions and electronic communications, such as emails, phone calls and video conferences, to support healthcare providers and patients. We believe that the measures we have implemented are appropriate and are helping to reduce transmission of COVID-19, and we will continue to monitor conditions and related guidance from governmental authorities and adjust our activities as appropriate. For information regarding the impacts related to the COVID-19 pandemic on our ability and the ability of our collaborators to effectively market, sell and distribute our products and to develop our products and product candidates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Overview—Outlook” in Part II Item 7 of this Annual Report on Form 10-K. Corporate Information We were incorporated in Delaware on July 15, 1997, as Seattle Genetics, Inc. In October 2020, we changed our corporate name from Seattle Genetics, Inc. to Seagen Inc., reflecting the global expansion of our operations. 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.seagen.com. Seagen®, ADCETRIS®, PADCEV®, TUKYSA® and TIVDAK® are our registered trademarks in the United States. All other trademarks, tradenames and service marks included in this Annual Report on Form 10-K are the property of their respective owners. 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.seagen.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. 34 35 Item 1A. Risk Factors regulatory restrictions may change or increase; 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 Products, Product Candidates and Research and Development 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 ability to generate revenue from product sales and our prospects for profitability are substantially dependent on our and our collaborators’ ability to effectively commercialize our products and expand their utilization. We may not be able to fully realize the commercial potential of our products, and/or commercial sales of our products may be lower than our projections, for a number of reasons, including: • • • • • • • • • • • • • we and our collaborators may be unable to effectively launch, market and commercialize our products, including in any new markets or in any new indications; we and our collaborators may not be able to establish or demonstrate to the medical community the efficacy, safety and value of our products and their potential advantages compared to existing and future therapeutics in their approved indications; we and our collaborators may not be able to obtain and maintain regulatory and other required governmental approvals to market our products in any additional territories or for any additional indications; new competitive therapies in the approved indications for our products have been approved by regulatory authorities or may be approved or submitted to regulatory authorities for approval in the near term; there may continue to be new adverse results, adverse events or safety concerns reported in connection with the use of our products, including in clinical trials; there may be additional changes to the labeling for our products that further restrict how we market and sell our products, including as a result of data collected from clinical trials and/or as a result of the use of our products; the incidence rate of new patients or the duration of therapy in the approved indications for our products may be lower than our projections; negative impacts related to the COVID-19 pandemic, including potential further impacts on cancer diagnosis rates, may increase or become more severe; we may encounter challenges in joint decision making and joint execution with our collaborators that adversely affect product sales; co-promotion arrangements, such as the joint commercialization of PADCEV with Astellas in the U.S. and the joint commercialization of TIVDAK with Genmab in the U.S., may not be successful; 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, the cost of alternative treatment options or otherwise; we and our collaborators may not be able to obtain favorable pricing and reimbursement approvals in additional territories in a timely manner or at all; 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; • • • products; and we and our collaborators may not have adequate financial or other resources to effectively commercialize our we and our collaborators may not be able to accurately predict demand for our products and obtain adequate commercial supplies of our products to meet demand at an acceptable cost. 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, as well as negative publicity regarding drug pricing and increases in drug prices 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 negatively affect our future product sales. If we and our collaborators are unable to successfully commercialize our products or if sales of a product do not reach the levels we expect, then our business, results of operation, financial condition and growth prospects could be adversely affected. Our success also depends on our ability to obtain regulatory approvals for our product candidates and for our current products in additional territories, as well as our ability to expand the labeled indications of use for our current products. Our inability to do so could have a material adverse effect on our business, results of operations, financial condition and growth prospects. We and our collaborators are required to obtain marketing approvals from applicable regulatory authorities in order to market our products or to expand the labeled indications of use for our current marketed products. However, regulatory review is a lengthy and expensive process, and approval is highly uncertain. The FDA and other regulatory agencies have substantial discretion in the approval process and in determining when or whether regulatory approval will be obtained. Clinical trial data are subject to differing interpretations. Even if we believe data are promising, regulatory authorities may disagree and may require additional data, limit the scope of the approval or deny approval altogether. For example, although applications for approval of PADCEV were submitted to various regulatory authorities based on results from the EV-201 and EV-301 trials, regulatory authorities may not approve these applications in a timely manner or at all. In this regard, although the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, adopted a positive opinion, recommending approval of PADCEV as monotherapy for the treatment of adult patients with locally advanced or metastatic urothelial cancer who have previously received platinum-containing chemotherapy and a PD-1/L1 inhibitor, the European Commission decision-making process has been paused for additional CHMP questions related to severe skin reactions in a French compassionate access program. It is possible that the European Commission may not approve PADCEV in a timely manner or at all. In addition, the approval of a product candidate by one regulatory agency does not mean that other regulatory agencies will also approve such product candidate. Any approval that a product does receive may be more restricted than anticipated. For example, regulatory authorities may approve a product for fewer indications or narrower indications than requested. Further, regulatory agencies may impose safety monitoring, educational requirements or risk evaluation and mitigation strategies, or REMS. Regulatory authorities may also fail to approve the facilities or processes used to manufacture a product candidate or the dosing or delivery methods. The regulatory review process may also take significantly longer than expected, which may delay or eliminate any potential revenues from sales of the affected product or product candidate. Target action dates and regulatory timelines may be subject to substantial delays. Although the FDA and EMA have programs to facilitate expedited development and accelerated approval processes, these programs may not result in faster review or approval than conventional procedures and do not assure ultimate approval. In addition, although the FDA granted Breakthrough Therapy designation to each of PADCEV and disitamab vedotin in a specified treatment setting, these Breakthrough Therapy designations do not increase the likelihood that PADCEV or disitamab vedotin will receive marketing approval in the specified settings or in any other settings in a timely manner or at all. Disruptions at the FDA and other agencies due to reduced funding levels, government shutdowns, impacts associated with the COVID-19 pandemic or other factors, may also lead to delays in the regulatory review process. These disruptions may also slow our other interactions with regulatory agencies, which may slow our other product development efforts. 36 37 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 Products, Product Candidates and Research and Development 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 ability to generate revenue from product sales and our prospects for profitability are substantially dependent on our and our collaborators’ ability to effectively commercialize our products and expand their utilization. We may not be able to fully realize the commercial potential of our products, and/or commercial sales of our products may be lower than our projections, for a number of reasons, including: • • • • • • • • • • • • • we and our collaborators may be unable to effectively launch, market and commercialize our products, including in any new markets or in any new indications; we and our collaborators may not be able to establish or demonstrate to the medical community the efficacy, safety and value of our products and their potential advantages compared to existing and future therapeutics in their approved indications; we and our collaborators may not be able to obtain and maintain regulatory and other required governmental approvals to market our products in any additional territories or for any additional indications; new competitive therapies in the approved indications for our products have been approved by regulatory authorities or may be approved or submitted to regulatory authorities for approval in the near term; there may continue to be new adverse results, adverse events or safety concerns reported in connection with the use of our products, including in clinical trials; there may be additional changes to the labeling for our products that further restrict how we market and sell our products, including as a result of data collected from clinical trials and/or as a result of the use of our products; the incidence rate of new patients or the duration of therapy in the approved indications for our products may be lower than our projections; negative impacts related to the COVID-19 pandemic, including potential further impacts on cancer diagnosis rates, may increase or become more severe; we may encounter challenges in joint decision making and joint execution with our collaborators that adversely affect product sales; co-promotion arrangements, such as the joint commercialization of PADCEV with Astellas in the U.S. and the joint commercialization of TIVDAK with Genmab in the U.S., may not be successful; 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, the cost of alternative we and our collaborators may not be able to obtain favorable pricing and reimbursement approvals in additional treatment options or otherwise; territories in a timely manner or at all; term efficacy and safety data exist; physicians may be reluctant to prescribe our products due to side effects associated with their use or until longer • • • regulatory restrictions may change or increase; we and our collaborators may not have adequate financial or other resources to effectively commercialize our products; and we and our collaborators may not be able to accurately predict demand for our products and obtain adequate commercial supplies of our products to meet demand at an acceptable cost. 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, as well as negative publicity regarding drug pricing and increases in drug prices 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 negatively affect our future product sales. If we and our collaborators are unable to successfully commercialize our products or if sales of a product do not reach the levels we expect, then our business, results of operation, financial condition and growth prospects could be adversely affected. Our success also depends on our ability to obtain regulatory approvals for our product candidates and for our current products in additional territories, as well as our ability to expand the labeled indications of use for our current products. Our inability to do so could have a material adverse effect on our business, results of operations, financial condition and growth prospects. We and our collaborators are required to obtain marketing approvals from applicable regulatory authorities in order to market our products or to expand the labeled indications of use for our current marketed products. However, regulatory review is a lengthy and expensive process, and approval is highly uncertain. The FDA and other regulatory agencies have substantial discretion in the approval process and in determining when or whether regulatory approval will be obtained. Clinical trial data are subject to differing interpretations. Even if we believe data are promising, regulatory authorities may disagree and may require additional data, limit the scope of the approval or deny approval altogether. For example, although applications for approval of PADCEV were submitted to various regulatory authorities based on results from the EV-201 and EV-301 trials, regulatory authorities may not approve these applications in a timely manner or at all. In this regard, although the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, adopted a positive opinion, recommending approval of PADCEV as monotherapy for the treatment of adult patients with locally advanced or metastatic urothelial cancer who have previously received platinum-containing chemotherapy and a PD-1/L1 inhibitor, the European Commission decision-making process has been paused for additional CHMP questions related to severe skin reactions in a French compassionate access program. It is possible that the European Commission may not approve PADCEV in a timely manner or at all. In addition, the approval of a product candidate by one regulatory agency does not mean that other regulatory agencies will also approve such product candidate. Any approval that a product does receive may be more restricted than anticipated. For example, regulatory authorities may approve a product for fewer indications or narrower indications than requested. Further, regulatory agencies may impose safety monitoring, educational requirements or risk evaluation and mitigation strategies, or REMS. Regulatory authorities may also fail to approve the facilities or processes used to manufacture a product candidate or the dosing or delivery methods. The regulatory review process may also take significantly longer than expected, which may delay or eliminate any potential revenues from sales of the affected product or product candidate. Target action dates and regulatory timelines may be subject to substantial delays. Although the FDA and EMA have programs to facilitate expedited development and accelerated approval processes, these programs may not result in faster review or approval than conventional procedures and do not assure ultimate approval. In addition, although the FDA granted Breakthrough Therapy designation to each of PADCEV and disitamab vedotin in a specified treatment setting, these Breakthrough Therapy designations do not increase the likelihood that PADCEV or disitamab vedotin will receive marketing approval in the specified settings or in any other settings in a timely manner or at all. Disruptions at the FDA and other agencies due to reduced funding levels, government shutdowns, impacts associated with the COVID-19 pandemic or other factors, may also lead to delays in the regulatory review process. These disruptions may also slow our other interactions with regulatory agencies, which may slow our other product development efforts. 36 37 If a product candidate fails to receive regulatory approvals, we will not have the anticipated revenues from that product candidate to fund our operations, and we may not recoup or receive any return on our investment in that product candidate. Similarly, if regulatory authorities do not approve product labeling that is necessary or desirable for the successful commercialization of an approved product, or if they do not approve an application to expand a product’s labeled indications of use or market the product in a new territory, then our anticipated revenue from that product may be adversely affected. Any of these events could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Even if regulatory approval is achieved, the launch of a new product or of an existing product in a new indication or territory is subject to a number of risks and uncertainties and may not be successful. Sales of a new product and sales of an existing product in a new indication or territory are subject to significant risks and uncertainties and can be particularly difficult to predict. For example, the commercialization of TIVDAK is at an early stage and may not be successful. In addition to commercialization risks described elsewhere in these "Risk Factors", impacts related to the COVID-19 pandemic, including restrictions on in-person interactions and resulting impacts on our ability to connect with key customers and conduct payor engagements, could limit our and our collaborators' abilities to effectively launch and commercialize a new product or to launch and commercialize an existing product in a new indication or territory. A proposed launch, including the launch of TUKYSA in countries in Europe where TUKYSA has not yet launched, could also be delayed or impaired due to a variety of factors, including supply constraints, delays in arranging a commercial infrastructure, delays in obtaining or failure to obtain pricing and reimbursement approvals, or other factors. These risks could be heightened by impacts related to the COVID-19 pandemic. Delays or other difficulties due to any of these factors could negatively impact anticipated revenue from the affected product. In addition, prior to TUKYSA, we had 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 TUKYSA. If we and our collaborators are unable to successfully launch and commercialize any newly approved products and/or to successfully launch and commercialize our existing products in new indications or territories, then our business, results of operation, financial condition and growth prospects could be adversely affected. 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 and product candidates could result in the limitation, denial or withdrawal of regulatory approval by the FDA or other regulatory authorities for any or all indications, the need to conduct additional trials, implementation of a REMS or the inclusion of unfavorable information in our product labeling and, in turn, could delay or prevent us from commercializing the applicable product or product candidate. There are no assurances that patients receiving our products will not experience serious adverse events, including fatal events, in the future, whether the serious adverse events are disclosed in the prescribing information or are newly reported. Further, there are no assurances that patients receiving our products with co-morbid diseases not previously studied, such as autoimmune diseases, will not experience new or different serious adverse events in the future. The prescribing information for each of our products includes warnings and precautions for various toxicities and reactions, including certain fatal reactions. The prescribing information for ADCETRIS also includes a boxed warning related to the risk that JC virus infection resulting in progressive multifocal leukoencephalopathy and death can occur in patients receiving ADCETRIS. The prescribing information for PADCEV also includes a boxed warning related to the risk that severe and fatal cutaneous adverse reactions, including Stevens-Johnson syndrome and toxic epidermal necrolysis, may occur in patients receiving PADCEV. The prescribing information for TIVDAK also includes a boxed warning related to the risk that ocular toxicity may occur in patients receiving TIVDAK, and the boxed warning includes requirements for ophthalmic exams at baseline, prior to each dose, and as clinically indicated, as well as premedication and eye care. We have updated the prescribing information for our products from time to time in the past, based on reports of adverse events or safety concerns, and 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, or to implement a REMS in the future. Side effects and toxicities associated with our products, as well as the warnings, precautions and requirements listed in the prescribing information for our products, could affect the willingness of physicians to prescribe, and patients to utilize, our products and thus harm commercial sales of our products. Implementation of a REMS could advantage products that compete with ours or make it more difficult or expensive for us to distribute our products. Likewise, reports of adverse events or safety concerns involving our products and product candidates could interrupt, delay or halt clinical trials of our products and product candidates, including the post-approval confirmatory studies that regulatory agencies have required us or our collaborators to complete. There have been serious side effects and, in some cases, deaths in clinical trials for our products and product candidates that were deemed to be treatment- related by the investigators in those trials, and additional and/or unexpected side effects may be observed in these or other trials in the future. In addition, in response to prior safety events observed in our clinical trials, including serious side effects and 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, our products and product candidates, could require us to alter the approved labeling of our products, may cause a trial to be redone or terminated, may affect patient recruitment or may affect the ability of enrolled patients to complete a trial. As a result, such safety events could adversely affect our business, results of operations, financial condition and growth prospects. Clinical trials and product development are expensive, time consuming and uncertain, may take longer than we expect and may not be successful. Our failure to effectively advance our development programs in a timely manner or at all could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Our long-term success will depend upon the successful development of new products, as well as developing our existing products for new indications. However, only a small number of development programs result in the commercialization of a product. It is possible that none of our product candidates will ever become commercial products and that none of our existing products will obtain regulatory approval in any additional indications or territories. We and our collaborators are currently conducting multiple clinical trials for our products and product candidates, and we plan to commence additional trials in the future. Each of these trials requires the investment of substantial expense and time. However, there can be no assurance that the design or conduct of these trials, or any data collected from them, will be sufficient to support advancement to the next stage of development, any regulatory approvals or commercial viability. 38 39 If a product candidate fails to receive regulatory approvals, we will not have the anticipated revenues from that product candidate to fund our operations, and we may not recoup or receive any return on our investment in that product candidate. Similarly, if regulatory authorities do not approve product labeling that is necessary or desirable for the successful commercialization of an approved product, or if they do not approve an application to expand a product’s labeled indications of use or market the product in a new territory, then our anticipated revenue from that product may be adversely affected. Any of these events could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Even if regulatory approval is achieved, the launch of a new product or of an existing product in a new indication or territory is subject to a number of risks and uncertainties and may not be successful. Sales of a new product and sales of an existing product in a new indication or territory are subject to significant risks and uncertainties and can be particularly difficult to predict. For example, the commercialization of TIVDAK is at an early stage and may not be successful. In addition to commercialization risks described elsewhere in these "Risk Factors", impacts related to the COVID-19 pandemic, including restrictions on in-person interactions and resulting impacts on our ability to connect with key customers and conduct payor engagements, could limit our and our collaborators' abilities to effectively launch and commercialize a new product or to launch and commercialize an existing product in a new indication or territory. A proposed launch, including the launch of TUKYSA in countries in Europe where TUKYSA has not yet launched, could also be delayed or impaired due to a variety of factors, including supply constraints, delays in arranging a commercial infrastructure, delays in obtaining or failure to obtain pricing and reimbursement approvals, or other factors. These risks could be heightened by impacts related to the COVID-19 pandemic. Delays or other difficulties due to any of these factors could negatively impact anticipated revenue from the affected product. In addition, prior to TUKYSA, we had 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 TUKYSA. If we and our collaborators are unable to successfully launch and commercialize any newly approved products and/or to successfully launch and commercialize our existing products in new indications or territories, then our business, results of operation, financial condition and growth prospects could be adversely affected. 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 and product candidates could result in the limitation, denial or withdrawal of regulatory approval by the FDA or other regulatory authorities for any or all indications, the need to conduct additional trials, implementation of a REMS or the inclusion of unfavorable information in our product labeling and, in turn, could delay or prevent us from commercializing the applicable product or product candidate. There are no assurances that patients receiving our products will not experience serious adverse events, including fatal events, in the future, whether the serious adverse events are disclosed in the prescribing information or are newly reported. Further, there are no assurances that patients receiving our products with co-morbid diseases not previously studied, such as autoimmune diseases, will not experience new or different serious adverse events in the future. The prescribing information for each of our products includes warnings and precautions for various toxicities and reactions, including certain fatal reactions. The prescribing information for ADCETRIS also includes a boxed warning related to the risk that JC virus infection resulting in progressive multifocal leukoencephalopathy and death can occur in patients receiving ADCETRIS. The prescribing information for PADCEV also includes a boxed warning related to the risk that severe and fatal cutaneous adverse reactions, including Stevens-Johnson syndrome and toxic epidermal necrolysis, may occur in patients receiving PADCEV. The prescribing information for TIVDAK also includes a boxed warning related to the risk that ocular toxicity may occur in patients receiving TIVDAK, and the boxed warning includes requirements for ophthalmic exams at baseline, prior to each dose, and as clinically indicated, as well as premedication and eye care. We have updated the prescribing information for our products from time to time in the past, based on reports of adverse events or safety concerns, and 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, or to implement a REMS in the future. Side effects and toxicities associated with our products, as well as the warnings, precautions and requirements listed in the prescribing information for our products, could affect the willingness of physicians to prescribe, and patients to utilize, our products and thus harm commercial sales of our products. Implementation of a REMS could advantage products that compete with ours or make it more difficult or expensive for us to distribute our products. Likewise, reports of adverse events or safety concerns involving our products and product candidates could interrupt, delay or halt clinical trials of our products and product candidates, including the post-approval confirmatory studies that regulatory agencies have required us or our collaborators to complete. There have been serious side effects and, in some cases, deaths in clinical trials for our products and product candidates that were deemed to be treatment- related by the investigators in those trials, and additional and/or unexpected side effects may be observed in these or other trials in the future. In addition, in response to prior safety events observed in our clinical trials, including serious side effects and 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, our products and product candidates, could require us to alter the approved labeling of our products, may cause a trial to be redone or terminated, may affect patient recruitment or may affect the ability of enrolled patients to complete a trial. As a result, such safety events could adversely affect our business, results of operations, financial condition and growth prospects. Clinical trials and product development are expensive, time consuming and uncertain, may take longer than we expect and may not be successful. Our failure to effectively advance our development programs in a timely manner or at all could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Our long-term success will depend upon the successful development of new products, as well as developing our existing products for new indications. However, only a small number of development programs result in the commercialization of a product. It is possible that none of our product candidates will ever become commercial products and that none of our existing products will obtain regulatory approval in any additional indications or territories. We and our collaborators are currently conducting multiple clinical trials for our products and product candidates, and we plan to commence additional trials in the future. Each of these trials requires the investment of substantial expense and time. However, there can be no assurance that the design or conduct of these trials, or any data collected from them, will be sufficient to support advancement to the next stage of development, any regulatory approvals or commercial viability. 38 39 Many of our clinical trials were initiated based on limited data. Encouraging preclinical, preliminary or interim data, and/or positive early-stage clinical trial results do not ensure that full, larger scale, later stage or confirmatory trials will be successful or that regulatory approval will be obtained. For example, despite the positive initial results we and Astellas reported from the dose-escalation cohort and expansion cohort A of the EV-103 trial, we cannot be certain that PADCEV will demonstrate sufficient efficacy or a favorable safety profile in other trials, including the EV-302 trial, or in other cohorts of the EV-103 trial, including cohort K. PADCEV may never be approved for use in any frontline setting or any other additional indications. Similarly, despite the encouraging antitumor activity in initial results from 23 patients in the MOUNTAINEER trial, we cannot be certain that TUKYSA will demonstrate sufficient efficacy or a favorable safety profile in the MOUNTAINEER trial or in other trials. TUKYSA may never be approved for use in the MOUNTAINEER treatment setting or in any other additional indications. 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 ongoing pivotal and confirmatory trials. There may still be important facts about the safety, efficacy, and risk versus benefit of our products and product requirements and potential delays, as well as risks associated with different standards of medical care. candidates, as single agents or in combination with other agents, that are not known to us at this time and that may negatively impact our ability to develop and commercialize them. Safety events or concerns, or negative or inconclusive trial results, could adversely affect the development timeline and the regulatory approval and commercialization prospects for our products and product candidates, or cause us to cease further development of a product or product candidate, any of which may materially and adversely affect our business, results of operations, financial condition and growth prospects. In addition, we may make a strategic decision to discontinue development if, for example, we believe commercialization will be difficult relative to the standard of care or we prefer to prioritize other opportunities in our pipeline. We also face intense competition, and it is possible that a clinical trial may meet its safety and efficacy endpoints but we may choose not to advance the development of a product or product due to changes in the competitive environment. From time to time, the commencement, continuation and completion of our clinical trials have been subject to delays, and we are likely to experience additional delays in the future. Factors that could lead to the delay, suspension, termination or need to modify clinical trials of our products and product candidates include: • • • • • • • • • • • • adverse medical events or side effects, including fatalities, in treated patients or other safety issues or concerns; deficiencies in the conduct of the clinical trial, including failure to conduct the clinical trial in accordance with regulatory requirements, Good Clinical Practice, or GCP, or study protocols; problems, errors or other deficiencies with respect to data collection, data processing and analysis; action by competent authorities to place a clinical hold or partial clinical hold on a trial or compound; the time required to determine efficacy may be longer than expected; unfavorable scientific results or insufficient data to support safety and effectiveness; inadequate supply or deficient quality of the applicable product or product candidate or of other materials necessary to complete the trials; inability to reach agreement on acceptable terms with prospective trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different trial sites; delay or failure to obtain institutional review board, or IRB, or ethics committee approval to conduct a clinical trial at a prospective site; decisions by competent authorities, IRBs, ethics committees, our collaborators or us, or recommendation by a data monitoring committee, to suspend or terminate a clinical trial for safety issues, futility or any other reason or to demand variations in the protocols or conduct of clinical trials; changes in governmental regulations or administrative actions that adversely affect the ability to continue to conduct or to complete a clinical trial; budgetary constraints or prohibitively high clinical trial costs; 40 41 • • • difficulties in identifying and enrolling patients who meet trial eligibility criteria; lower than anticipated retention rates for patients who have initiated a clinical trial; and the risks and evolving effects of the COVID-19 pandemic. 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. We have experienced enrollment-related delays in clinical trials in the past, and we will likely continue to experience similar delays in our current and future trials. Many of our future and ongoing clinical trials are being or will be coordinated or conducted with collaborators. If we and these collaborators fail to collaborate effectively, we may experience delays or adverse effects on the commencement, continuation or completion of these trials. In addition, our collaborators have operational control over some of the studies we conduct jointly and we do not have full visibility into these studies run by our collaborators. We also conduct clinical trials in countries outside the U.S., which may subject us to additional expenses, regulatory If a product candidate or a potential new indication fails at any stage of development, or if we or our collaborators otherwise discontinue development of a product candidate or indication for any reason, we will not have the anticipated revenues from that product candidate or indication to fund our operations and we may not recoup or receive any return on our investment in that product candidate or indication. Failure to effectively advance our development programs in a timely manner or at all could have a material adverse effect on our business, results of operations, financial condition and prospects. The successful commercialization of our products will depend, in part, on the extent to which governmental authorities and health insurers establish adequate coverage and reimbursement levels and pricing policies. Successful sales of 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 and our collaborators will achieve and maintain coverage for our products and any product candidates that we or our collaborators commercialize and, if available, that the reimbursement rates will be adequate and grant access to all eligible patients. If we or our collaborators are unable to obtain and maintain coverage and adequate levels of reimbursement for our current and any future approved products that we or our collaborators 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, TUKYSA or TIVDAK based on their relative price and perceived benefits as compared to alternative treatment options or otherwise, which may materially harm our and our collaborators’ ability to successfully commercialize PADCEV, TUKYSA and TIVDAK in our respective designated territories. In addition, we have also experienced an increase in gross-to-net deductions for ADCETRIS since the beginning of the pandemic, which has been driven by the proportion of ADCETRIS sales subject to discounts through the federal 340B drug discount program, as well as increases in discount rates. We believe that the increase in gross-to-net deductions is, in part, due to a shift in the locations where ADCETRIS is administered. We may further experience additional increases in gross-to-net deductions for ADCETRIS and the rest of our portfolio in the future based on market and site-of-care dynamics. Many of our clinical trials were initiated based on limited data. Encouraging preclinical, preliminary or interim data, and/or positive early-stage clinical trial results do not ensure that full, larger scale, later stage or confirmatory trials will be successful or that regulatory approval will be obtained. For example, despite the positive initial results we and Astellas reported from the dose-escalation cohort and expansion cohort A of the EV-103 trial, we cannot be certain that PADCEV will demonstrate sufficient efficacy or a favorable safety profile in other trials, including the EV-302 trial, or in other cohorts of the EV-103 trial, including cohort K. PADCEV may never be approved for use in any frontline setting or any other additional indications. Similarly, despite the encouraging antitumor activity in initial results from 23 patients in the MOUNTAINEER trial, we cannot be certain that TUKYSA will demonstrate sufficient efficacy or a favorable safety profile in the MOUNTAINEER trial or in other trials. TUKYSA may never be approved for use in the MOUNTAINEER treatment setting or in any other additional indications. 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 ongoing pivotal and confirmatory trials. There may still be important facts about the safety, efficacy, and risk versus benefit of our products and product candidates, as single agents or in combination with other agents, that are not known to us at this time and that may negatively impact our ability to develop and commercialize them. Safety events or concerns, or negative or inconclusive trial results, could adversely affect the development timeline and the regulatory approval and commercialization prospects for our products and product candidates, or cause us to cease further development of a product or product candidate, any of which may materially and adversely affect our business, results of operations, financial condition and growth prospects. In addition, we may make a strategic decision to discontinue development if, for example, we believe commercialization will be difficult relative to the standard of care or we prefer to prioritize other opportunities in our pipeline. We also face intense competition, and it is possible that a clinical trial may meet its safety and efficacy endpoints but we may choose not to advance the development of a product or product due to changes in the competitive environment. From time to time, the commencement, continuation and completion of our clinical trials have been subject to delays, and we are likely to experience additional delays in the future. Factors that could lead to the delay, suspension, termination or need to modify clinical trials of our products and product candidates include: • • • • • • • • • • • • adverse medical events or side effects, including fatalities, in treated patients or other safety issues or concerns; deficiencies in the conduct of the clinical trial, including failure to conduct the clinical trial in accordance with regulatory requirements, Good Clinical Practice, or GCP, or study protocols; problems, errors or other deficiencies with respect to data collection, data processing and analysis; action by competent authorities to place a clinical hold or partial clinical hold on a trial or compound; the time required to determine efficacy may be longer than expected; unfavorable scientific results or insufficient data to support safety and effectiveness; inadequate supply or deficient quality of the applicable product or product candidate or of other materials necessary to complete the trials; inability to reach agreement on acceptable terms with prospective trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different trial sites; delay or failure to obtain institutional review board, or IRB, or ethics committee approval to conduct a clinical trial at a prospective site; decisions by competent authorities, IRBs, ethics committees, our collaborators or us, or recommendation by a data monitoring committee, to suspend or terminate a clinical trial for safety issues, futility or any other reason or to demand variations in the protocols or conduct of clinical trials; changes in governmental regulations or administrative actions that adversely affect the ability to continue to conduct or to complete a clinical trial; budgetary constraints or prohibitively high clinical trial costs; • • • difficulties in identifying and enrolling patients who meet trial eligibility criteria; lower than anticipated retention rates for patients who have initiated a clinical trial; and the risks and evolving effects of the COVID-19 pandemic. 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. We have experienced enrollment-related delays in clinical trials in the past, and we will likely continue to experience similar delays in our current and future trials. Many of our future and ongoing clinical trials are being or will be coordinated or conducted with collaborators. If we and these collaborators fail to collaborate effectively, we may experience delays or adverse effects on the commencement, continuation or completion of these trials. In addition, our collaborators have operational control over some of the studies we conduct jointly and we do not have full visibility into these studies run by our collaborators. We also conduct clinical trials in countries outside the U.S., which may subject us to additional expenses, regulatory requirements and potential delays, as well as risks associated with different standards of medical care. If a product candidate or a potential new indication fails at any stage of development, or if we or our collaborators otherwise discontinue development of a product candidate or indication for any reason, we will not have the anticipated revenues from that product candidate or indication to fund our operations and we may not recoup or receive any return on our investment in that product candidate or indication. Failure to effectively advance our development programs in a timely manner or at all could have a material adverse effect on our business, results of operations, financial condition and prospects. The successful commercialization of our products will depend, in part, on the extent to which governmental authorities and health insurers establish adequate coverage and reimbursement levels and pricing policies. Successful sales of 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 and our collaborators will achieve and maintain coverage for our products and any product candidates that we or our collaborators commercialize and, if available, that the reimbursement rates will be adequate and grant access to all eligible patients. If we or our collaborators are unable to obtain and maintain coverage and adequate levels of reimbursement for our current and any future approved products that we or our collaborators 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, TUKYSA or TIVDAK based on their relative price and perceived benefits as compared to alternative treatment options or otherwise, which may materially harm our and our collaborators’ ability to successfully commercialize PADCEV, TUKYSA and TIVDAK in our respective designated territories. In addition, we have also experienced an increase in gross-to-net deductions for ADCETRIS since the beginning of the pandemic, which has been driven by the proportion of ADCETRIS sales subject to discounts through the federal 340B drug discount program, as well as increases in discount rates. We believe that the increase in gross-to-net deductions is, in part, due to a shift in the locations where ADCETRIS is administered. We may further experience additional increases in gross-to-net deductions for ADCETRIS and the rest of our portfolio in the future based on market and site-of-care dynamics. 40 41 In many jurisdictions, including many countries in Europe, the proposed pricing for a drug must be approved in an individual country 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 or our collaborators from selling a product in a country where it has received regulatory approval. In European countries where we have obtained regulatory approval of TUKYSA, we will seek pricing and reimbursement agreements for TUKYSA in accordance with local timelines. As an organization, we did not have any experience applying for pricing and reimbursement approvals in jurisdictions outside the U.S. and Canada prior to our applications with respect to TUKYSA. Further, authorities in Europe have substantial discretion in the pricing and reimbursement approval process and in determining when or whether coverage will be available for a product in its initial indication or for any additional indications or in additional territories. In addition, in some cases, they may lower the price for a medicine after the price has been established. If we or Merck 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 TUKYSA in those regions would be negatively affected. Eligibility for coverage and reimbursement does not imply that payors will pay for a drug in all cases or at a rate financial position. that captures the value delivered to patients, payors and the overall healthcare system; allows for continued investment in innovative treatments for cancer patients; or 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 for a given product, or they may cover the product but establish prices at levels that are too low to enable us to realize an appropriate return on our investment in product development or limit access to select patient populations, reducing revenue potential. Further, in the U.S., 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 upheld or 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 governmental and societal scrutiny create significant uncertainty regarding regulation of the healthcare industry and third-party coverage and reimbursement in the U.S. and other jurisdictions. If additional healthcare policies or reforms intended to curb healthcare costs are implemented 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 approved products may be limited, and our revenues from sales of our current and any future approved products may be negatively impacted. The successful commercialization of our products will also depend in part on the acceptance of our products by the medical community, patients and third-party payors. The degree of market acceptance among patients, physicians, and third-party payors is 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 clinical benefits of our products, the effectiveness of our marketing, sales and distribution strategy and operations, the perceived advantages and relative cost, safety and efficacy of alternative treatments, and the acceptance and degree of adoption of our products by institutional treatment pathways and institutional, local, and national clinical guidelines. In the U.S., many oncology practices and healthcare providers rely on the National Comprehensive Cancer Networks® Clinical Practice Guidelines in Oncology 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. Any failures or setbacks in our ADC development program or our other platform technologies could negatively affect our business and financial position. ADCETRIS, PADCEV, TIVDAK and our ladiratuzumab vedotin and disitamab vedotin product candidates are all based on antibody-drug conjugate, or 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 Biotechnology Ltd., or AbbVie, Astellas, Genentech, Inc., a member of the Roche Group, or Genentech, and GlaxoSmithKline LLC, or GSK, and our collaboration agreements with Takeda, Astellas, Genmab and Merck. 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 clinical holds on our trials of our 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 product candidate pipeline, as well as our ability to maintain and/or enter into new corporate collaborations regarding our ADC technology, which would negatively affect our business and 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 and intense competition. 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. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. With respect to ADCETRIS, there are several other FDA approved drugs for its approved indications. BMS’s nivolumab and Merck’s pembrolizumab are approved for the treatment of certain patients with relapsed or refractory classical Hodgkin lymphoma, and Acrotech Biopharma’s pralatrexate and belinostat are approved for relapsed or refractory systemic anaplastic large cell lymphoma, or sALCL, among other T-cell lymphomas. Celgene's romidepsin is approved for cutaneous T-cell lymphoma. Kyowa Kirin’s mogamulizumab 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 conducted a phase 3 clinical trial in relapsed or refractory classical Hodgkin lymphoma comparing pembrolizumab to ADCETRIS. An interim analysis of this clinical trial demonstrated a statistically significant improvement in progression-free survival for pembrolizumab compared with ADCETRIS, resulting in a label expansion to an earlier line of therapy, and we expect increased competition from pembrolizumab in this indication. We are also aware of multiple investigational agents currently being studied that, if successful, may compete with ADCETRIS in the future, such as camidanlumab tesirine being studied in a phase 2 study in relapsed/refractory classical Hodgkin lymphoma. Merck is conducting a phase 2 study in newly diagnosed classical Hodgkin lymphoma. 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 and chemotherapy, in addition to clinical trials with experimental agents. With respect to PADCEV, other treatments in pretreated metastatic urothelial cancer include sacituzumab govitecan (a Trop-2-directed antibody and topoisomerase inhibitor conjugate), checkpoint inhibitor monotherapy, generic chemotherapy and, for patients with select FGFR genetic alterations, Janssen’s erdafitinib. Front line metastatic urothelial cancer has traditionally been treated with chemotherapy alone but is evolving to include checkpoint inhibitors for cisplatin-ineligible patients with high PD-L1 expression in addition to patients who are ineligible for platinum therapy. Several trials of investigational agents in combination with chemotherapy or other novel agents are ongoing. Continued development of PD-(L)1 targeted therapies across early stage bladder cancer and in metastatic bladder cancer in frontline combinations with chemotherapy, in frontline maintenance with the recent approval of avelumab, and in pretreated disease, could potentially impact PADCEV usage and enrollment in PADCEV clinical trials. 42 43 In many jurisdictions, including many countries in Europe, the proposed pricing for a drug must be approved in an Any failures or setbacks in our ADC development program or our other platform technologies could negatively individual country before it may be lawfully marketed, which could delay entry of a product into a market or, if pricing is affect our business and financial position. not approved, may prevent us or our collaborators from selling a product in a country where it has received regulatory approval. In European countries where we have obtained regulatory approval of TUKYSA, we will seek pricing and reimbursement agreements for TUKYSA in accordance with local timelines. As an organization, we did not have any experience applying for pricing and reimbursement approvals in jurisdictions outside the U.S. and Canada prior to our applications with respect to TUKYSA. Further, authorities in Europe have substantial discretion in the pricing and reimbursement approval process and in determining when or whether coverage will be available for a product in its initial indication or for any additional indications or in additional territories. In addition, in some cases, they may lower the price for a medicine after the price has been established. If we or Merck 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 TUKYSA in those regions would be negatively affected. Eligibility for coverage and reimbursement does not imply that payors will pay for a drug in all cases or at a rate that captures the value delivered to patients, payors and the overall healthcare system; allows for continued investment in innovative treatments for cancer patients; or 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 for a given product, or they may cover the product but establish prices at levels that are too low to enable us to realize an appropriate return on our investment in product development or limit access to select patient populations, reducing revenue potential. Further, in the U.S., 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 upheld or 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 governmental and societal scrutiny create significant uncertainty regarding regulation of the healthcare industry and third-party coverage and reimbursement in the U.S. and other jurisdictions. If additional healthcare policies or reforms intended to curb healthcare costs are implemented 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 approved products may be limited, and our revenues from sales of our current and any future approved products may be negatively impacted. The successful commercialization of our products will also depend in part on the acceptance of our products by the medical community, patients and third-party payors. The degree of market acceptance among patients, physicians, and third-party payors is 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 clinical benefits of our products, the effectiveness of our marketing, sales and distribution strategy and operations, the perceived advantages and relative cost, safety and efficacy of alternative treatments, and the acceptance and degree of adoption of our products by institutional treatment pathways and institutional, local, and national clinical guidelines. In the U.S., many oncology practices and healthcare providers rely on the National Comprehensive Cancer Networks® Clinical Practice Guidelines in Oncology 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. ADCETRIS, PADCEV, TIVDAK and our ladiratuzumab vedotin and disitamab vedotin product candidates are all based on antibody-drug conjugate, or 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 Biotechnology Ltd., or AbbVie, Astellas, Genentech, Inc., a member of the Roche Group, or Genentech, and GlaxoSmithKline LLC, or GSK, and our collaboration agreements with Takeda, Astellas, Genmab and Merck. 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 clinical holds on our trials of our 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 product candidate pipeline, as well as our ability to maintain and/or enter into new corporate collaborations regarding our ADC technology, which would negatively affect our business and financial position. We 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 and intense competition. 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. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. With respect to ADCETRIS, there are several other FDA approved drugs for its approved indications. BMS’s nivolumab and Merck’s pembrolizumab are approved for the treatment of certain patients with relapsed or refractory classical Hodgkin lymphoma, and Acrotech Biopharma’s pralatrexate and belinostat are approved for relapsed or refractory systemic anaplastic large cell lymphoma, or sALCL, among other T-cell lymphomas. Celgene's romidepsin is approved for cutaneous T-cell lymphoma. Kyowa Kirin’s mogamulizumab 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 conducted a phase 3 clinical trial in relapsed or refractory classical Hodgkin lymphoma comparing pembrolizumab to ADCETRIS. An interim analysis of this clinical trial demonstrated a statistically significant improvement in progression-free survival for pembrolizumab compared with ADCETRIS, resulting in a label expansion to an earlier line of therapy, and we expect increased competition from pembrolizumab in this indication. We are also aware of multiple investigational agents currently being studied that, if successful, may compete with ADCETRIS in the future, such as camidanlumab tesirine being studied in a phase 2 study in relapsed/refractory classical Hodgkin lymphoma. Merck is conducting a phase 2 study in newly diagnosed classical Hodgkin lymphoma. 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 and chemotherapy, in addition to clinical trials with experimental agents. With respect to PADCEV, other treatments in pretreated metastatic urothelial cancer include sacituzumab govitecan (a Trop-2-directed antibody and topoisomerase inhibitor conjugate), checkpoint inhibitor monotherapy, generic chemotherapy and, for patients with select FGFR genetic alterations, Janssen’s erdafitinib. Front line metastatic urothelial cancer has traditionally been treated with chemotherapy alone but is evolving to include checkpoint inhibitors for cisplatin-ineligible patients with high PD-L1 expression in addition to patients who are ineligible for platinum therapy. Several trials of investigational agents in combination with chemotherapy or other novel agents are ongoing. Continued development of PD-(L)1 targeted therapies across early stage bladder cancer and in metastatic bladder cancer in frontline combinations with chemotherapy, in frontline maintenance with the recent approval of avelumab, and in pretreated disease, could potentially impact PADCEV usage and enrollment in PADCEV clinical trials. 42 43 With respect to TUKYSA, there are multiple marketed products which target HER2, including the antibodies trastuzumab and pertuzumab and the antibody drug conjugate T-DM1. In addition, lapatinib is an EGFR/HER2 oral kinase inhibitor for the treatment of metastatic breast cancer, and neratinib is an irreversible pan-HER kinase inhibitor indicated for extended adjuvant treatment and treatment of metastatic breast cancer in patients who received two or more prior anti-HER2-based regimens. Daiichi Sankyo and AstraZeneca have fam-trastuzumab deruxtecan-nxki which was approved by the FDA for patients who have received two or more prior anti-HER2-based regimens in the metastatic breast cancer setting and recently in the HER2 positive gastric cancer setting. The agent was also granted conditional marketing authorization by the EMA for the treatment of adult patients with unresectable or metastatic HER2-positive breast cancer who have received two or more prior anti-HER2-based regimens. In addition, fam-trastuzumab deruxtecan- nxki is being reviewed by the FDA for use in 2nd line (i.e., in patients who previously received one anti-HER2 based regimen in the metastatic setting) based on the DESTINY-breast 03 trial results. If approved, the sequence of therapies patients receive in this condition is likely to change, with greater fam-trastuzumab deruxtecan-nxki use in 2nd line. This may pose increased competition for TUKYSA, which is approved by the FDA for patients who have received one or more prior anti-HER2-based regimens in the metastatic setting, including in patients with brain metastases. MacroGenics has a HER2 targeted, Fc-optimized antibody, margetuximab, which was recently approved by the FDA in patients who have received at least two previous anti-HER2 regimens. Additionally, Byondis has an antibody drug conjugate, SYD985, and recently released results from its pivotal trial in metastatic breast cancer patients treated with multiple anti- HER2-based regimens. Approval of SYD985 for this patient population may occur in 2022. With respect to TIVDAK, in October 2021, Merck’s pembrolizumab was approved in combination with chemotherapy, with or without bevacizumab, for the treatment of recurrent or metastatic cervical cancer whose tumors express PD-L1 and was grated full approval as a monotherapy for recurrent or metastatic cervical cancer patients 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 TIVDAK, including Agenus, BMS, Iovance Biotherapeutics, Merck, Regeneron Pharmaceuticals, Sanofi-Aventis and Roche. Cemiplimab is being reviewed in several countries outside the U.S. for the treatment of patients with recurrent or metastatic cervical cancer following progression on platinum-based chemotherapy. A supplemental Biologics License Application for cemiplimab was recently withdrawn in the U.S. 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. In addition, we are aware of a number of other companies that have ADC and other technologies that may be competitive with ours. 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, our ADC collaborators may develop compounds utilizing our technology that may compete with product candidates that we are developing. The risk of biosimilar or generic challenges has also been increasing in our industry. In the U.S. and the EU, after a period of exclusivity for an innovator’s approved biological product or branded drug has passed, there are abbreviated pathways for approval of biosimilar products or generic drugs. In addition, it is not possible to predict changes in law that might reduce regulatory exclusivity. As a result, and due to uncertainties regarding patent protection, it is not possible to predict the length of market exclusivity for any particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. Absent patent protection or regulatory exclusivity for our products, it is possible, both in the United States and elsewhere, that biosimilar, interchangeable or generic versions of those products may be approved and marketed, which would likely result in substantial and rapid reductions in revenues from sales of those products. It is also possible that our competitors will succeed in developing technologies that are more effective than our products and product candidates or that would render our technology obsolete or noncompetitive, or will succeed in developing biosimilar, interchangeable or generic products for our products and 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 our products and product candidates. Risks Related to Regulatory Oversight, and Other Legal Compliance Matters Our products and any future approved products remain subject to extensive ongoing regulatory obligations and oversight, including post-approval requirements, that could result in penalties and significant additional expense and could negatively impact our and our collaborators’ ability to commercialize our current and any future approved products. Any product that has received regulatory approval remains subject to extensive ongoing obligations and continued review from applicable regulatory agencies. These obligations include, among other things, drug safety reporting and surveillance, submission of other post-marketing information and reports, pre-clearance of certain promotional materials, manufacturing processes and practices, product labeling, confirmatory or post-approval clinical research, import and export requirements and record keeping. These obligations may result in significant expense and limit our and our collaborators’ ability to commercialize our current and any future approved products. Any violation of ongoing regulatory obligations could result in restrictions on the applicable product, including the withdrawal of the applicable product from the market. If FDA approval is granted via the accelerated approval pathway or a product receives conditional marketing authorization from another comparable regulatory agency, we and our collaborators may be required to conduct a post- marketing confirmatory trial in support of full approval and to comply with other additional requirements. For example, in connection with ADCETRIS’s conditional marketing authorization in relapsed Hodgkin lymphoma, relapsed cutaneous T-cell lymphoma, and both relapsed and frontline sALCL in the EU, Takeda is subject to certain post-approval requirements, including the requirement to conduct clinical trials to confirm clinical benefit. The FDA’s accelerated approval of TIVDAK also included a requirement for a confirmatory trial. An unsuccessful post-marketing study or failure to complete such a study with due diligence could result in the withdrawal of marketing approval. Post-marketing studies may also suggest unfavorable safety information that could require us to update the product’s prescribing information or limit or prevent the product’s widespread use. In addition, the labeling, advertising and promotion of products that have received accelerated approval from the FDA, including TIVDAK, are subject to additional regulatory requirements, which entail significant expense and could negatively impact the product’s commercialization. Regulatory authorities may also impose additional post-marketing commitments, including requirements for companion diagnostics. For example, the FDA’s approval of ADCETRIS in the frontline peripheral T-cell lymphoma indication included a post-marketing commitment to develop an 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 such a diagnostic device. 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, any approved product, its manufacturer and the manufacturer’s facilities are subject to continual regulatory review and inspections, including periodic unannounced inspections. Failure to comply with applicable FDA and other regulatory requirements may subject us to administrative or judicially imposed sanctions and other consequences, including: 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 regulatory approvals and commercialization; refusal by the FDA to approve pending applications or supplements to approved applications submitted by us; 44 45 With respect to TUKYSA, there are multiple marketed products which target HER2, including the antibodies Risks Related to Regulatory Oversight, and Other Legal Compliance Matters trastuzumab and pertuzumab and the antibody drug conjugate T-DM1. In addition, lapatinib is an EGFR/HER2 oral kinase inhibitor for the treatment of metastatic breast cancer, and neratinib is an irreversible pan-HER kinase inhibitor indicated for extended adjuvant treatment and treatment of metastatic breast cancer in patients who received two or more prior anti-HER2-based regimens. Daiichi Sankyo and AstraZeneca have fam-trastuzumab deruxtecan-nxki which was approved by the FDA for patients who have received two or more prior anti-HER2-based regimens in the metastatic breast cancer setting and recently in the HER2 positive gastric cancer setting. The agent was also granted conditional marketing authorization by the EMA for the treatment of adult patients with unresectable or metastatic HER2-positive breast cancer who have received two or more prior anti-HER2-based regimens. In addition, fam-trastuzumab deruxtecan- nxki is being reviewed by the FDA for use in 2nd line (i.e., in patients who previously received one anti-HER2 based regimen in the metastatic setting) based on the DESTINY-breast 03 trial results. If approved, the sequence of therapies patients receive in this condition is likely to change, with greater fam-trastuzumab deruxtecan-nxki use in 2nd line. This may pose increased competition for TUKYSA, which is approved by the FDA for patients who have received one or more prior anti-HER2-based regimens in the metastatic setting, including in patients with brain metastases. MacroGenics has a HER2 targeted, Fc-optimized antibody, margetuximab, which was recently approved by the FDA in patients who have received at least two previous anti-HER2 regimens. Additionally, Byondis has an antibody drug conjugate, SYD985, and recently released results from its pivotal trial in metastatic breast cancer patients treated with multiple anti- HER2-based regimens. Approval of SYD985 for this patient population may occur in 2022. With respect to TIVDAK, in October 2021, Merck’s pembrolizumab was approved in combination with chemotherapy, with or without bevacizumab, for the treatment of recurrent or metastatic cervical cancer whose tumors express PD-L1 and was grated full approval as a monotherapy for recurrent or metastatic cervical cancer patients 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 TIVDAK, including Agenus, BMS, Iovance Biotherapeutics, Merck, Regeneron Pharmaceuticals, Sanofi-Aventis and Roche. Cemiplimab is being reviewed in several countries outside the U.S. for the treatment of patients with recurrent or metastatic cervical cancer following progression on platinum-based chemotherapy. A supplemental Biologics License Application for cemiplimab was recently withdrawn in the U.S. 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. In addition, we are aware of a number of other companies that have ADC and other technologies that may be competitive with ours. 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, our ADC collaborators may develop compounds utilizing our technology that may compete with product candidates that we are developing. The risk of biosimilar or generic challenges has also been increasing in our industry. In the U.S. and the EU, after a period of exclusivity for an innovator’s approved biological product or branded drug has passed, there are abbreviated pathways for approval of biosimilar products or generic drugs. In addition, it is not possible to predict changes in law that might reduce regulatory exclusivity. As a result, and due to uncertainties regarding patent protection, it is not possible to predict the length of market exclusivity for any particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. Absent patent protection or regulatory exclusivity for our products, it is possible, both in the United States and elsewhere, that biosimilar, interchangeable or generic versions of those products may be approved and marketed, which would likely result in substantial and rapid reductions in revenues from sales of those products. It is also possible that our competitors will succeed in developing technologies that are more effective than our products and product candidates or that would render our technology obsolete or noncompetitive, or will succeed in developing biosimilar, interchangeable or generic products for our products and 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 our products and product candidates. Our products and any future approved products remain subject to extensive ongoing regulatory obligations and oversight, including post-approval requirements, that could result in penalties and significant additional expense and could negatively impact our and our collaborators’ ability to commercialize our current and any future approved products. Any product that has received regulatory approval remains subject to extensive ongoing obligations and continued review from applicable regulatory agencies. These obligations include, among other things, drug safety reporting and surveillance, submission of other post-marketing information and reports, pre-clearance of certain promotional materials, manufacturing processes and practices, product labeling, confirmatory or post-approval clinical research, import and export requirements and record keeping. These obligations may result in significant expense and limit our and our collaborators’ ability to commercialize our current and any future approved products. Any violation of ongoing regulatory obligations could result in restrictions on the applicable product, including the withdrawal of the applicable product from the market. If FDA approval is granted via the accelerated approval pathway or a product receives conditional marketing authorization from another comparable regulatory agency, we and our collaborators may be required to conduct a post- marketing confirmatory trial in support of full approval and to comply with other additional requirements. For example, in connection with ADCETRIS’s conditional marketing authorization in relapsed Hodgkin lymphoma, relapsed cutaneous T-cell lymphoma, and both relapsed and frontline sALCL in the EU, Takeda is subject to certain post-approval requirements, including the requirement to conduct clinical trials to confirm clinical benefit. The FDA’s accelerated approval of TIVDAK also included a requirement for a confirmatory trial. An unsuccessful post-marketing study or failure to complete such a study with due diligence could result in the withdrawal of marketing approval. Post-marketing studies may also suggest unfavorable safety information that could require us to update the product’s prescribing information or limit or prevent the product’s widespread use. In addition, the labeling, advertising and promotion of products that have received accelerated approval from the FDA, including TIVDAK, are subject to additional regulatory requirements, which entail significant expense and could negatively impact the product’s commercialization. Regulatory authorities may also impose additional post-marketing commitments, including requirements for companion diagnostics. For example, the FDA’s approval of ADCETRIS in the frontline peripheral T-cell lymphoma indication included a post-marketing commitment to develop an 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 such a diagnostic device. 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, any approved product, its manufacturer and the manufacturer’s facilities are subject to continual regulatory review and inspections, including periodic unannounced inspections. Failure to comply with applicable FDA and other regulatory requirements may subject us to administrative or judicially imposed sanctions and other consequences, including: • • • • • • • • 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 regulatory approvals and commercialization; refusal by the FDA to approve pending applications or supplements to approved applications submitted by us; 44 45 • • • • refusals to permit drugs to be imported into or exported from the U.S.; restrictions on operations, including costly new manufacturing requirements; product recalls or seizures or withdrawal of the affected product from the market; and products, as well as those of our collaborators. reputational harm. The policies of the FDA and other regulatory agencies may change and additional laws and regulations may be enacted that could prevent or delay regulatory approval of our product candidates or of our products in any additional indications or territories, or further restrict or regulate post-approval activities. Any problems with a product or any violation of ongoing regulatory obligations could result in restrictions on the applicable product, including the withdrawal of the applicable product from the market. If we are not able to maintain regulatory compliance, we or our collaborators might not be permitted to commercialize our current or any future approved products and our business would suffer. Healthcare law and policy changes may negatively impact our business, including by decreasing the prices that we and our collaborators receive for our products. In recent years, there have been a number of legislative and regulatory actions and executive orders that have made reforms to the U.S. healthcare system. The implementation of certain of these policy changes has decreased our revenues and increased our costs, and federal and state legislatures, governments in countries outside the U.S., health agencies and third-party payors continue to focus on containing the cost of healthcare. Further legislative and regulatory changes, and increasing pressure from social sources, are likely to further influence the manner in which our products are priced, reimbursed, prescribed and purchased. Such additional reforms could result in further reductions in coverage and levels of reimbursement for our products, expansion of U.S. government rebate and discount programs, increases in the rebates and discounts payable under these programs, requests for additional or supplemental rebates, and additional downward pressure on the prices that we and our collaborators receive for our products. The federal government has implemented reforms to government healthcare programs in the U.S., including changes to the methods for, and amounts of, Medicare reimbursement and changes to the Medicaid Drug Rebate Program. For example, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act, which included changes to the Medicare Part B program requiring rebates for some discarded drug products that will increase future rebates. The Biden administration also recently announced an Executive Order that includes initiatives to support the implementation of Canadian drug importation and reduce drug prices. In response to President Biden’s Executive Order, on September 9, 2021, the U.S. Department of Health and Human Services released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. No legislation or administrative actions have been finalized to implement these principles. In addition, Congress is considering drug pricing as part of other healthcare reform initiatives. Some states are also considering legislation, or have passed laws, that would control the prices and coverage and reimbursement levels of drugs, including laws to allow importation of pharmaceutical products from lower cost jurisdictions outside the U.S. and laws intended to impose price controls on state drug purchases. In addition, governments in countries outside the U.S. control the costs of pharmaceuticals. Many European countries and Canada have established pricing and reimbursement policies that contain costs by referencing the price of the same or similar products in other countries. In these instances, if coverage or the level of reimbursement is reduced, limited or eliminated in one or more countries, we may be unable to obtain or maintain anticipated pricing or reimbursement in other countries or in new markets. This may create the opportunity for third-party cross-border trade or may influence our decision whether to sell a product in one or more countries, thus adversely affecting our geographic expansion plans. It is also possible that governments may take additional action to reform the healthcare system in response to the evolving effects of the COVID-19 pandemic. We cannot assure you as to the ultimate content, timing, or effect of future healthcare law and policy changes, nor is it possible at this time to estimate the impact of any such potential changes; however, such changes or the ultimate impact of changes could materially and adversely affect our revenue or sales of our current and or potential future We are subject to various state, federal and international laws and regulations, including healthcare laws and regulations, that may impact our business and could subject us to significant fines and penalties or other negative consequences. Our operations may be directly or indirectly subject to various healthcare laws, including, without limitation, the federal Anti-Kickback Statute, federal civil and criminal false claims laws, regulations prohibiting off-label promotions and federal transparency requirements. These laws may impact, among other things, the sales, marketing and education programs for our products and any future approved products. In addition, the number and complexity of healthcare laws and regulations applicable to our business continue to increase. The federal Anti-Kickback Statute prohibits, among other things, 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, in whole or in part, under a federal healthcare program such as the Medicare and Medicaid programs. 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, and practices that involve remuneration not intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. In addition, a criminal conviction for violation of the federal Anti-Kickback Statute requires mandatory exclusion from participation in federal healthcare programs. The federal civil and criminal false claims laws, including the civil False Claims Act, prohibit, among other things, persons or entities from knowingly presenting, or causing to be presented, a false claim to, or the knowing use of false statements to obtain payment from or approval by, the federal government, including the Medicare and Medicaid programs, or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim or to avoid, decrease, or conceal an obligation to pay money to the federal government. Many pharmaceutical and other healthcare companies have been investigated and have reached substantial financial settlements with the federal government under the civil False Claims Act for a variety of alleged improper marketing, promotion or other activities. 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 as criminal 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, deferred prosecution agreements and/ or non-prosecution agreements that impose significant reporting and other burdens on the affected companies. The federal transparency requirements under 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 information related to certain payments or other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners), 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 plus up to an aggregate of $1 million per year for “knowing failures,” as adjusted for inflation. 46 47 refusals to permit drugs to be imported into or exported from the U.S.; restrictions on operations, including costly new manufacturing requirements; product recalls or seizures or withdrawal of the affected product from the market; and • • • • reputational harm. The policies of the FDA and other regulatory agencies may change and additional laws and regulations may be enacted that could prevent or delay regulatory approval of our product candidates or of our products in any additional indications or territories, or further restrict or regulate post-approval activities. Any problems with a product or any violation of ongoing regulatory obligations could result in restrictions on the applicable product, including the withdrawal of the applicable product from the market. If we are not able to maintain regulatory compliance, we or our collaborators might not be permitted to commercialize our current or any future approved products and our business would suffer. Healthcare law and policy changes may negatively impact our business, including by decreasing the prices that we and our collaborators receive for our products. In recent years, there have been a number of legislative and regulatory actions and executive orders that have made reforms to the U.S. healthcare system. The implementation of certain of these policy changes has decreased our revenues and increased our costs, and federal and state legislatures, governments in countries outside the U.S., health agencies and third-party payors continue to focus on containing the cost of healthcare. Further legislative and regulatory changes, and increasing pressure from social sources, are likely to further influence the manner in which our products are priced, reimbursed, prescribed and purchased. Such additional reforms could result in further reductions in coverage and levels of reimbursement for our products, expansion of U.S. government rebate and discount programs, increases in the rebates and discounts payable under these programs, requests for additional or supplemental rebates, and additional downward pressure on the prices that we and our collaborators receive for our products. The federal government has implemented reforms to government healthcare programs in the U.S., including changes to the methods for, and amounts of, Medicare reimbursement and changes to the Medicaid Drug Rebate Program. For example, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act, which included changes to the Medicare Part B program requiring rebates for some discarded drug products that will increase future rebates. The Biden administration also recently announced an Executive Order that includes initiatives to support the implementation of Canadian drug importation and reduce drug prices. In response to President Biden’s Executive Order, on September 9, 2021, the U.S. Department of Health and Human Services released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. No legislation or administrative actions have been finalized to implement these principles. In addition, Congress is considering drug pricing as part of other healthcare reform initiatives. Some states are also considering legislation, or have passed laws, that would control the prices and coverage and reimbursement levels of drugs, including laws to allow importation of pharmaceutical products from lower cost jurisdictions outside the U.S. and laws intended to impose price controls on state drug purchases. In addition, governments in countries outside the U.S. control the costs of pharmaceuticals. Many European countries and Canada have established pricing and reimbursement policies that contain costs by referencing the price of the same or similar products in other countries. In these instances, if coverage or the level of reimbursement is reduced, limited or eliminated in one or more countries, we may be unable to obtain or maintain anticipated pricing or reimbursement in other countries or in new markets. This may create the opportunity for third-party cross-border trade or may influence our decision whether to sell a product in one or more countries, thus adversely affecting our geographic expansion plans. It is also possible that governments may take additional action to reform the healthcare system in response to the evolving effects of the COVID-19 pandemic. We cannot assure you as to the ultimate content, timing, or effect of future healthcare law and policy changes, nor is it possible at this time to estimate the impact of any such potential changes; however, such changes or the ultimate impact of changes could materially and adversely affect our revenue or sales of our current and or potential future products, as well as those of our collaborators. We are subject to various state, federal and international laws and regulations, including healthcare laws and regulations, that may impact our business and could subject us to significant fines and penalties or other negative consequences. Our operations may be directly or indirectly subject to various healthcare laws, including, without limitation, the federal Anti-Kickback Statute, federal civil and criminal false claims laws, regulations prohibiting off-label promotions and federal transparency requirements. These laws may impact, among other things, the sales, marketing and education programs for our products and any future approved products. In addition, the number and complexity of healthcare laws and regulations applicable to our business continue to increase. The federal Anti-Kickback Statute prohibits, among other things, 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, in whole or in part, under a federal healthcare program such as the Medicare and Medicaid programs. 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, and practices that involve remuneration not intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. In addition, a criminal conviction for violation of the federal Anti-Kickback Statute requires mandatory exclusion from participation in federal healthcare programs. The federal civil and criminal false claims laws, including the civil False Claims Act, prohibit, among other things, persons or entities from knowingly presenting, or causing to be presented, a false claim to, or the knowing use of false statements to obtain payment from or approval by, the federal government, including the Medicare and Medicaid programs, or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim or to avoid, decrease, or conceal an obligation to pay money to the federal government. Many pharmaceutical and other healthcare companies have been investigated and have reached substantial financial settlements with the federal government under the civil False Claims Act for a variety of alleged improper marketing, promotion or other activities. 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 as criminal 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, deferred prosecution agreements and/ or non-prosecution agreements that impose significant reporting and other burdens on the affected companies. The federal transparency requirements under 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 information related to certain payments or other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners), 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 plus up to an aggregate of $1 million per year for “knowing failures,” as adjusted for inflation. 46 47 In addition, there has been increased scrutiny of company-sponsored patient assistance programs, including co- pay assistance programs, and donations to third-party charities that provide such assistance. There has also been enhanced scrutiny by governments of reimbursement support offerings, clinical education programs and promotional speaker programs. If we or our vendors 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, in connection with civil settlements related to these laws and regulations, the U.S. government has and may in the future require companies to enter into complex corporate integrity agreements that impost significant reporting and other requirements. Other healthcare laws and regulations that may affect our ability to operate include, among others, the federal civil monetary penalties statute and the healthcare fraud provisions of the federal Health Insurance Portability and Accountability Act, or HIPAA. In addition, many states and jurisdictions outside the U.S. have similar laws and regulations, such as anti-kickback, anti-bribery and corruption, false claims and transparency, to which we are currently and/or may in the future, be subject. Additional information about these requirements is provided under “Government Regulation – Healthcare Regulation” in this Annual Report on Form 10-K. We are also subject to numerous other laws and regulations that while not specific to the healthcare industry, do apply to the healthcare industry in important ways. For example, we are subject to antitrust regulations with respect to interactions with other participants in the markets we currently serve or may serve in the future. These antitrust laws are vigorously enforced in the U.S. and in other jurisdictions in which we operate. In an effort to comply with applicable laws and regulations, we have implemented a compliance program designed amongst various EU member states. to actively identify, prevent and mitigate risk by implementing policies and systems and promoting a culture of compliance. We also actively work to revise and evolve our compliance program in an effort to keep pace with evolving compliance risks and the growing scale of our business. However, we cannot guarantee that our compliance program will be sufficient or effective, that we will be able to integrate the operations of newly formed affiliates or acquired businesses into our compliance program effectively or on a timely basis, that our employees will comply with our policies, 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 limit or avoid liability for whistleblower claims or actions by governmental authorities. If we are found to be in violation of any of the laws and regulations described above or other applicable laws, we may be subject to penalties, including significant civil, criminal and administrative penalties, damages, fines, disgorgement, contractual damages, reputational harm, administrative burdens, 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 these outcomes could have a material adverse effect on our business, results of operations, financial condition and growth prospects. 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. Moreover, achieving and sustaining compliance with applicable federal, state and healthcare laws outside the U.S. is costly and time-consuming for our management. We are subject to stringent and changing obligations related to data privacy and information security. Our actual or perceived failure to comply with such obligations could lead to governmental investigations or actions, litigation, fines and penalties, a disruption of our business operations, reputational harm and other adverse business impacts. We are subject to numerous privacy and data protection laws and regulations governing personal information, including healthcare information. In addition, the legislative and regulatory landscape for privacy and data protection continues to evolve. In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, and consumer protection laws. The laws are not consistent, and states frequently amend existing laws, requiring attention to constantly changing regulatory requirements. For example, the California Consumer Privacy Act, or CCPA, became effective on January 1, 2020, and the California Privacy Rights Act, or CPRA, will take effect in January 2023 (with a look back for certain rights to January 2022). The CPRA will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information. We may also be subject to additional U.S. privacy regulations in the future, including the Virginia Consumer Data Protection Act and the Colorado Privacy Act, both of which become effective in 2023. In addition, at the federal level, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations impose additional obligations on certain types of individuals and entities with respect to the security, privacy and transmission of individually identifiable health information. EU member countries and other jurisdictions, including Switzerland, the United Kingdom, or the U.K., and Canada, have also adopted data protection laws and regulations which impose significant compliance obligations. For example, the EU’s General Data Protection Regulation, or GDPR, imposes a range of requirements relating to the collection, use, handling and protection of personal data. Violations of the GDPR can result in significant penalties, including potential fines of up to €20 million or 4% of the annual global revenues of the non-compliant company, whichever is greater. The GDPR has increased our responsibility and potential liability in relation to all types of personal data that we process, including clinical trial data and employee information. In addition, local data protection authorities can have different interpretations of the GDPR, leading to compliance challenges as a result of potential inconsistencies Among other requirements, the GDPR regulates transfers of personal data to countries that have not been found to provide adequate protection to such personal data, including the U.S. This includes transfers between us and our subsidiaries. In July 2020, the Court of Justice of the EU, or the CJEU, invalidated one of the primary safeguards enabling U.S. companies to import personal information from Europe, the EU-U.S. Privacy Shield. The same decision also raised questions about whether one of the primary alternatives to the EU-U.S. Privacy Shield, namely, the EC’s Standard Contractual Clauses, or SCCs, provide sufficient protection for personal data transfers without analyzing each transfer and implementing supplementary measures to protect the data. As a result of the CJEU’s decision, the EC issued new SCCs in June 2021 that repeal and replace the previous clauses. Companies relying on the SCCs for transfers have until December 2022 to implement the new clauses. Following recommendations from the European Data Protection Board, we are reviewing personal data transfers from the EU and adding the new SCCs and supplementary measures, when required. Since local data protection authorities can interpret GDPR and the CJEU’s decision differently, there is no definitive set of controls that can ensure GDPR compliance across our business operations. In addition, authorities in Switzerland and the U.K., whose data protection laws are similar to those of the EU, also invalidated the use of privacy shields. Additional compliance efforts may be needed to respond to evolving regulatory guidance. If our compliance solutions are found to be insufficient, we could face substantial fines under European data protection laws as well as injunctions against processing and/or transferring personal information from Europe. The inability to import personal information from Europe could restrict our clinical trial activities in Europe, limit our ability to collaborate with contract research organizations, service providers, contractors and other companies subject to European data protection laws, interfere with our ability to hire employees in Europe and require us to increase our data processing capabilities in Europe at significant expense. In addition, we may be subject to other foreign data privacy and security laws. For example, China’s Personal Information Protection Law, or PIPL, which took effect in November 2021, imposes various requirements related to personal information processing, similar to the GDPR and CCPA. In particular, the PIPL sets out personal information localization requirements, along with rules regarding the transfer of personal information outside of China. Such transfers may require assessment and/or approval by China’s Cyberspace Administration, certification by professional institutions or entering into contracts with and supervising overseas recipients. Violations of the PIPL may lead to an administrative fine of up to RMB 50 million or 5% of turnover in the last year. 48 49 In addition, there has been increased scrutiny of company-sponsored patient assistance programs, including co- pay assistance programs, and donations to third-party charities that provide such assistance. There has also been enhanced scrutiny by governments of reimbursement support offerings, clinical education programs and promotional speaker programs. If we or our vendors 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, in connection with civil settlements related to these laws and regulations, the U.S. government has and may in the future require companies to enter into complex corporate integrity agreements that impost significant reporting and other requirements. Other healthcare laws and regulations that may affect our ability to operate include, among others, the federal civil monetary penalties statute and the healthcare fraud provisions of the federal Health Insurance Portability and Accountability Act, or HIPAA. In addition, many states and jurisdictions outside the U.S. have similar laws and regulations, such as anti-kickback, anti-bribery and corruption, false claims and transparency, to which we are currently and/or may in the future, be subject. Additional information about these requirements is provided under “Government Regulation – Healthcare Regulation” in this Annual Report on Form 10-K. We are also subject to numerous other laws and regulations that while not specific to the healthcare industry, do apply to the healthcare industry in important ways. For example, we are subject to antitrust regulations with respect to interactions with other participants in the markets we currently serve or may serve in the future. These antitrust laws are vigorously enforced in the U.S. and in other jurisdictions in which we operate. In an effort to comply with applicable laws and regulations, we have implemented a compliance program designed to actively identify, prevent and mitigate risk by implementing policies and systems and promoting a culture of compliance. We also actively work to revise and evolve our compliance program in an effort to keep pace with evolving compliance risks and the growing scale of our business. However, we cannot guarantee that our compliance program will be sufficient or effective, that we will be able to integrate the operations of newly formed affiliates or acquired businesses into our compliance program effectively or on a timely basis, that our employees will comply with our policies, 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 limit or avoid liability for whistleblower claims or actions by governmental authorities. If we are found to be in violation of any of the laws and regulations described above or other applicable laws, we may be subject to penalties, including significant civil, criminal and administrative penalties, damages, fines, disgorgement, contractual damages, reputational harm, administrative burdens, 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 these outcomes could have a material adverse effect on our business, results of operations, financial condition and growth prospects. 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. Moreover, achieving and sustaining compliance with applicable federal, state and healthcare laws outside the U.S. is costly and time-consuming for our management. We are subject to stringent and changing obligations related to data privacy and information security. Our actual or perceived failure to comply with such obligations could lead to governmental investigations or actions, litigation, fines and penalties, a disruption of our business operations, reputational harm and other adverse business impacts. continues to evolve. We are subject to numerous privacy and data protection laws and regulations governing personal information, including healthcare information. In addition, the legislative and regulatory landscape for privacy and data protection In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, and consumer protection laws. The laws are not consistent, and states frequently amend existing laws, requiring attention to constantly changing regulatory requirements. For example, the California Consumer Privacy Act, or CCPA, became effective on January 1, 2020, and the California Privacy Rights Act, or CPRA, will take effect in January 2023 (with a look back for certain rights to January 2022). The CPRA will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information. We may also be subject to additional U.S. privacy regulations in the future, including the Virginia Consumer Data Protection Act and the Colorado Privacy Act, both of which become effective in 2023. In addition, at the federal level, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations impose additional obligations on certain types of individuals and entities with respect to the security, privacy and transmission of individually identifiable health information. EU member countries and other jurisdictions, including Switzerland, the United Kingdom, or the U.K., and Canada, have also adopted data protection laws and regulations which impose significant compliance obligations. For example, the EU’s General Data Protection Regulation, or GDPR, imposes a range of requirements relating to the collection, use, handling and protection of personal data. Violations of the GDPR can result in significant penalties, including potential fines of up to €20 million or 4% of the annual global revenues of the non-compliant company, whichever is greater. The GDPR has increased our responsibility and potential liability in relation to all types of personal data that we process, including clinical trial data and employee information. In addition, local data protection authorities can have different interpretations of the GDPR, leading to compliance challenges as a result of potential inconsistencies amongst various EU member states. Among other requirements, the GDPR regulates transfers of personal data to countries that have not been found to provide adequate protection to such personal data, including the U.S. This includes transfers between us and our subsidiaries. In July 2020, the Court of Justice of the EU, or the CJEU, invalidated one of the primary safeguards enabling U.S. companies to import personal information from Europe, the EU-U.S. Privacy Shield. The same decision also raised questions about whether one of the primary alternatives to the EU-U.S. Privacy Shield, namely, the EC’s Standard Contractual Clauses, or SCCs, provide sufficient protection for personal data transfers without analyzing each transfer and implementing supplementary measures to protect the data. As a result of the CJEU’s decision, the EC issued new SCCs in June 2021 that repeal and replace the previous clauses. Companies relying on the SCCs for transfers have until December 2022 to implement the new clauses. Following recommendations from the European Data Protection Board, we are reviewing personal data transfers from the EU and adding the new SCCs and supplementary measures, when required. Since local data protection authorities can interpret GDPR and the CJEU’s decision differently, there is no definitive set of controls that can ensure GDPR compliance across our business operations. In addition, authorities in Switzerland and the U.K., whose data protection laws are similar to those of the EU, also invalidated the use of privacy shields. Additional compliance efforts may be needed to respond to evolving regulatory guidance. If our compliance solutions are found to be insufficient, we could face substantial fines under European data protection laws as well as injunctions against processing and/or transferring personal information from Europe. The inability to import personal information from Europe could restrict our clinical trial activities in Europe, limit our ability to collaborate with contract research organizations, service providers, contractors and other companies subject to European data protection laws, interfere with our ability to hire employees in Europe and require us to increase our data processing capabilities in Europe at significant expense. In addition, we may be subject to other foreign data privacy and security laws. For example, China’s Personal Information Protection Law, or PIPL, which took effect in November 2021, imposes various requirements related to personal information processing, similar to the GDPR and CCPA. In particular, the PIPL sets out personal information localization requirements, along with rules regarding the transfer of personal information outside of China. Such transfers may require assessment and/or approval by China’s Cyberspace Administration, certification by professional institutions or entering into contracts with and supervising overseas recipients. Violations of the PIPL may lead to an administrative fine of up to RMB 50 million or 5% of turnover in the last year. 48 49 Any failure or alleged failure to comply with legal or contractual obligations, policies and industry standards relating to personal information, and any incident resulting in the unauthorized access to, or acquisition, release or transfer of, personal information, may result in governmental investigations or enforcement actions, litigation, fines, penalties, damage to our reputation and other adverse consequences. In addition, we expect that laws, regulations, policies and industry standards relating to privacy and data protection will continue to evolve. These changes may require us to modify our practices and may increase our costs of doing business. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards that may legally or contractually apply to us. If we fail to follow these standards, even if no personal information is compromised, we may incur significant fines or experience a significant increase in costs. 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. risks, including: The testing, manufacturing, marketing, and sale of products and product candidates expose us to product liability claims. 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 resulted in injury to patients. While we have obtained product liability insurance, it may not provide adequate coverage against all potential liabilities. In addition, we may not be able to maintain insurance coverage on acceptable terms or at all. If a product liability claim or series of claims is brought against us, we may experience substantial financial losses, including uninsured liabilities or liabilities in excess of insured amounts, and may be required to limit further development and commercialization of our products, either of which could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Additionally, product liability claims, regardless of their merits, could be costly, could divert management’s attention and could adversely affect our reputation and the demand for our products. 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 laws and regulations. We are subject to environmental, health and safety laws and regulations, including those governing the use and disposal 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 this regard, 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. Some environmental laws impose liability for contamination on current owners or 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 remediation obligations, damages or fines, which may exceed our insurance coverage and materially harm our business, financial condition and results of operations. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations. Risks Related to Our Reliance on Third Parties Our collaborators and licensees may not perform as expected, which may negatively affect our ability to develop and commercialize our products and product candidates and/or generate revenues through technology licensing, and may otherwise negatively affect our business. We have established collaborations with third parties to develop and market each of our products and some of our current and potential future product candidates. These include our collaborations with Takeda for ADCETRIS, with Astellas for PADCEV, with Merck for TUKYSA and with Genmab for TIVDAK. We also have established clinical trial collaborations to develop certain of our products or product candidates in combination with the products or product candidates of third parties. Our dependence on these collaboration and licensing arrangements subjects us to a number of • • • • • • • we are not able to control the amount or timing of resources our collaborators and licensees devote to the development or commercialization of our programs, products or product candidates; the interests of our collaborators may not always be aligned with our interests, and such parties may not pursue regulatory approvals or market a product in the same manner or to the same extent that we would, which could adversely affect our revenue, or may adopt tax strategies that could have an adverse effect on our business, results of operations or financial condition; • with respect to products or product candidates under joint control, we may encounter challenges in joint decision making and joint execution, including with respect to any joint development or commercialization plans or co-promotion activities, which may delay or otherwise harm the research, development, launch or commercialization of the applicable products and product candidates; disputes may arise between us and our collaborators or licensees, including with respect to the achievement and payment of milestones or ownership of rights to technology developed, that could result in litigation or any failure on the part of our collaborators to comply with applicable laws, including tax laws, regulatory requirements and/or applicable contractual obligations or to fulfill any responsibilities they may have to protect and enforce any intellectual property rights underlying our products could have an adverse effect on our revenue as well as involve us in possible legal proceedings; • any improper conduct or actions on the part of our collaborators, licensees or other third parties could subject us to civil or criminal investigations and monetary penalties and injunctions, impact the accuracy and timing of our financial reporting and/or adversely impact our ability to conduct business, our operating results and our arbitration; reputation; business combinations or significant changes in a collaborator’s business strategy may adversely affect such party’s willingness or ability to complete its obligations under any arrangement; a collaborator could independently move forward with competing products, therapeutic approaches or technologies, either independently or in collaboration with others, including with our competitors; and our collaboration agreements may be terminated, breached or allowed to expire, or our collaborators may reduce the scope of our agreements with them. If our collaborative and license arrangements are not successful, then our ability to advance the development and commercialization of the applicable products and product candidates, or to otherwise generate revenue from these arrangements, will be adversely affected, and our business and business prospects may be materially harmed. If any of our collaborators terminates our collaboration or opts out of their obligations, we may have to engage another collaborator, or we may have to complete the development process and undertake commercializing the applicable product or product candidate in our collaborator’s current territories ourselves. This could significantly disrupt or delay the development and commercialization of the applicable product or product candidate and substantially increase our costs. Any of these events could have a material adverse effect on our business, results of operations, financial condition and growth prospects. 50 51 Any failure or alleged failure to comply with legal or contractual obligations, policies and industry standards relating to personal information, and any incident resulting in the unauthorized access to, or acquisition, release or transfer of, personal information, may result in governmental investigations or enforcement actions, litigation, fines, penalties, damage to our reputation and other adverse consequences. In addition, we expect that laws, regulations, policies and industry standards relating to privacy and data protection will continue to evolve. These changes may require us to modify our practices and may increase our costs of doing business. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards that may legally or contractually apply to us. If we fail to follow these standards, even if no personal information is compromised, we may incur significant fines or experience a significant increase in costs. 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 testing, manufacturing, marketing, and sale of products and product candidates expose us to product liability claims. 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 resulted in injury to patients. While we have obtained product liability insurance, it may not provide adequate coverage against all potential liabilities. In addition, we may not be able to maintain insurance coverage on acceptable terms or at all. If a product liability claim or series of claims is brought against us, we may experience substantial financial losses, including uninsured liabilities or liabilities in excess of insured amounts, and may be required to limit further development and commercialization of our products, either of which could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Additionally, product liability claims, regardless of their merits, could be costly, could divert management’s attention and could adversely affect our reputation and the demand for our products. 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 laws and regulations. We are subject to environmental, health and safety laws and regulations, including those governing the use and disposal 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 this regard, 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. Some environmental laws impose liability for contamination on current owners or 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 remediation obligations, damages or fines, which may exceed our insurance coverage and materially harm our business, financial condition and results of operations. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations. Risks Related to Our Reliance on Third Parties Our collaborators and licensees may not perform as expected, which may negatively affect our ability to develop and commercialize our products and product candidates and/or generate revenues through technology licensing, and may otherwise negatively affect our business. We have established collaborations with third parties to develop and market each of our products and some of our current and potential future product candidates. These include our collaborations with Takeda for ADCETRIS, with Astellas for PADCEV, with Merck for TUKYSA and with Genmab for TIVDAK. We also have established clinical trial collaborations to develop certain of our products or product candidates in combination with the products or product candidates of third parties. Our dependence on these collaboration and licensing arrangements subjects us to a number of risks, including: • • • • • • • • • we are not able to control the amount or timing of resources our collaborators and licensees devote to the development or commercialization of our programs, products or product candidates; the interests of our collaborators may not always be aligned with our interests, and such parties may not pursue regulatory approvals or market a product in the same manner or to the same extent that we would, which could adversely affect our revenue, or may adopt tax strategies that could have an adverse effect on our business, results of operations or financial condition; with respect to products or product candidates under joint control, we may encounter challenges in joint decision making and joint execution, including with respect to any joint development or commercialization plans or co-promotion activities, which may delay or otherwise harm the research, development, launch or commercialization of the applicable products and product candidates; disputes may arise between us and our collaborators or licensees, including with respect to the achievement and payment of milestones or ownership of rights to technology developed, that could result in litigation or arbitration; any failure on the part of our collaborators to comply with applicable laws, including tax laws, regulatory requirements and/or applicable contractual obligations or to fulfill any responsibilities they may have to protect and enforce any intellectual property rights underlying our products could have an adverse effect on our revenue as well as involve us in possible legal proceedings; any improper conduct or actions on the part of our collaborators, licensees or other third parties could subject us to civil or criminal investigations and monetary penalties and injunctions, impact the accuracy and timing of our financial reporting and/or adversely impact our ability to conduct business, our operating results and our reputation; business combinations or significant changes in a collaborator’s business strategy may adversely affect such party’s willingness or ability to complete its obligations under any arrangement; a collaborator could independently move forward with competing products, therapeutic approaches or technologies, either independently or in collaboration with others, including with our competitors; and our collaboration agreements may be terminated, breached or allowed to expire, or our collaborators may reduce the scope of our agreements with them. If our collaborative and license arrangements are not successful, then our ability to advance the development and commercialization of the applicable products and product candidates, or to otherwise generate revenue from these arrangements, will be adversely affected, and our business and business prospects may be materially harmed. If any of our collaborators terminates our collaboration or opts out of their obligations, we may have to engage another collaborator, or we may have to complete the development process and undertake commercializing the applicable product or product candidate in our collaborator’s current territories ourselves. This could significantly disrupt or delay the development and commercialization of the applicable product or product candidate and substantially increase our costs. Any of these events could have a material adverse effect on our business, results of operations, financial condition and growth prospects. 50 51 A substantial portion of our revenue results from payments made under agreements with our collaborators. The loss of any of our collaborators, 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 business, results of operations, financial condition and growth prospects. 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. In addition to collaboration agreements, we also have ADC license agreements that allow our licensees to use our proprietary ADC technology. Our ADC licensees conduct all research, product development, manufacturing and commercialization of any product candidates under these agreements. Any delay or termination of the development and commercialization of a licensed product or product candidate by the licensee could adversely affect our business, results of operations, financial condition and growth prospects by reducing or eliminating the potential for us to receive applicable milestones and royalties. We currently rely on third-party manufacturers and other third parties for production of our drug products, and our dependence on these third parties may impair the continued development and commercialization of our products and product candidates. We own a biologics manufacturing facility located in Bothell, Washington, which we use to support our clinical supply needs, and we recently invested in the facility infrastructure to enable it to potentially support some of our commercial supply needs in the future, as well. We have also signed a lease to a facility currently being constructed in Everett, Washington, which will be used for future manufacturing capability. However, we rely and expect to continue to rely on collaborators, contract manufacturers and other third parties to produce and store sufficient quantities of drug product for both our clinical and commercial programs. In some cases, we rely on contract manufacturers and other third parties that are single-source suppliers to complete steps in the manufacturing process. If any of the parties in our supply chain cease or interrupt production or otherwise fail to deliver materials, products or services on a timely basis, with sufficient quality, and at commercially reasonable prices, and we fail to find replacements or to develop our own manufacturing capabilities, we may bear costly losses or be required to delay or suspend clinical trials or otherwise delay or discontinue development, production and sale of our products. As a result, our business, results of operations, financial condition and growth prospects could be materially and adversely affected. There are a limited number of facilities in which each of our products and product candidates can be produced. Any interruption of the operation of those facilities, due to equipment malfunction or failure, damage to the facility, natural disasters, regulatory actions, contractual disputes or other events, could result in delays, cancellation of shipments, loss of product in the manufacturing process, or a shortfall in supply. Further, we and our collaborators depend on outside vendors for the supply of raw materials used to produce our products and product candidates. If these suppliers were to cease production or otherwise fail to supply quality raw materials and we or our collaborators were unable to contract with alternative suppliers for these raw materials on acceptable terms, our ability to have our products manufactured to meet clinical and commercial requirements would be adversely affected. In an effort to increase the availability of needed medical and other supplies and products in connection with the COVID-19 pandemic, we and our suppliers may elect to, or governments may require us or our suppliers to, allocate raw materials used in manufacturing or manufacturing capacity (for example pursuant to the U.S. Defense Production Act) in a way that adversely affects our ability to have our products manufactured to meet clinical and commercial requirements. In addition, if any of the parties in our supply chain are adversely impacted by the evolving effects of the COVID-19 pandemic, such as staffing shortages, productions slowdowns and/or disruptions in delivery systems, there could be disruptions and delays in the manufacturing and supply of our products and product candidates. While we believe that the existing supplies of our products and our and our collaborators’ contract manufacturing relationships will be sufficient to accommodate current clinical and commercial needs, we or our collaborators may need to obtain additional manufacturing arrangements or increase manufacturing capability to meet potential future commercial needs, which could require additional capital investment or cause delays. We cannot assure you that we can enter into additional manufacturing arrangements on commercially reasonable terms or at all. Forecasting demand for a new product or for a newly-approved territory or indication for an existing product can be challenging. If demand for a product exceeds our estimates or if our commercial manufacturers are unable or unwilling to increase production capacity commensurate with demand, our commercialization of the affected product could be negatively impacted by short-term product supply challenges. Supply challenges would adversely impact our revenues and could negatively affect our relationships with patients and healthcare professionals. In addition, 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 and collaborators’ ability to launch and commercialize our products, including TUKYSA, in additional markets where they have obtained regulatory approval. In order to obtain regulatory approval of any product candidate or regulatory approval of any product in a new jurisdiction, the suppliers for that product or product candidate must obtain approval to manufacture and supply product. In addition, the facilities utilized to manufacture the product or product candidate will be subject to pre-approval regulatory inspections. Any delay or failure in generating the chemistry, manufacturing and control data required in connection with any application for regulatory approval, or challenges in the regulatory inspection process, could negatively impact our ability to meet our anticipated regulatory submission dates, delay any approval decisions and/or negatively affect our ability to obtain regulatory approval at all. Any failure of us, our collaborators or a manufacturer to obtain approval to manufacture and supply product in a jurisdiction, or to obtain and distribute adequate supplies of the product, on a timely basis or in accordance with applicable specifications and local requirements could negatively impact our ability to successfully launch and commercialize the applicable product in that jurisdiction 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 in meeting 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. and increase our costs. 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 revenues We sell ADCETRIS, PADCEV and TIVDAK through a limited number of specialty distributors. Healthcare providers order ADCETRIS, PADCEV and TIVDAK through these distributors. We receive orders from distributors and generally ship product directly to the healthcare provider. We sell TUKYSA through a distribution network of specialty pharmacies, integrated delivery network hospitals and practices that dispense in the office. These distributors and distribution network partners do not set or determine demand for our products; however, our ability to effectively commercialize our products will depend, in part, on their performance. If we lost a major distributor or partner, revenue during any period of disruption could suffer and we might incur additional costs. In addition, business disruptions arising from the COVID-19 pandemic could negatively affect the ability of some of our distributors or distribution network partners to pay amounts owed to us in a timely manner or at all. We are dependent on third parties such as contract research organizations, medical institutions and clinical investigators to assist with the design, review, management and conduct of our clinical trials and other activities. We also depend on third parties such as contract research organizations, medical institutions and clinical investigators to assist with the design, review, management and conduct of our clinical trials and other activities. Our reliance on these third parties reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with regulatory requirements, GCP and study protocols. To the extent these third parties fail to successfully carry out their contractual duties or meet expected deadlines, our clinical trials and regulatory filings may be negatively impacted including possible impacts to data, results, or conclusions, increased costs, and delays to regulatory timelines, which may harm our reputation and business. 52 53 A substantial portion of our revenue results from payments made under agreements with our collaborators. The loss of any of our collaborators, 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 business, results of operations, financial condition and growth prospects. 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. In addition to collaboration agreements, we also have ADC license agreements that allow our licensees to use our proprietary ADC technology. Our ADC licensees conduct all research, product development, manufacturing and commercialization of any product candidates under these agreements. Any delay or termination of the development and commercialization of a licensed product or product candidate by the licensee could adversely affect our business, results of operations, financial condition and growth prospects by reducing or eliminating the potential for us to receive applicable milestones and royalties. We currently rely on third-party manufacturers and other third parties for production of our drug products, and our dependence on these third parties may impair the continued development and commercialization of our products and product candidates. We own a biologics manufacturing facility located in Bothell, Washington, which we use to support our clinical supply needs, and we recently invested in the facility infrastructure to enable it to potentially support some of our commercial supply needs in the future, as well. We have also signed a lease to a facility currently being constructed in Everett, Washington, which will be used for future manufacturing capability. However, we rely and expect to continue to rely on collaborators, contract manufacturers and other third parties to produce and store sufficient quantities of drug product for both our clinical and commercial programs. In some cases, we rely on contract manufacturers and other third parties that are single-source suppliers to complete steps in the manufacturing process. If any of the parties in our supply chain cease or interrupt production or otherwise fail to deliver materials, products or services on a timely basis, with sufficient quality, and at commercially reasonable prices, and we fail to find replacements or to develop our own manufacturing capabilities, we may bear costly losses or be required to delay or suspend clinical trials or otherwise delay or discontinue development, production and sale of our products. As a result, our business, results of operations, financial condition and growth prospects could be materially and adversely affected. There are a limited number of facilities in which each of our products and product candidates can be produced. Any interruption of the operation of those facilities, due to equipment malfunction or failure, damage to the facility, natural disasters, regulatory actions, contractual disputes or other events, could result in delays, cancellation of shipments, loss of product in the manufacturing process, or a shortfall in supply. Further, we and our collaborators depend on outside vendors for the supply of raw materials used to produce our products and product candidates. If these suppliers were to cease production or otherwise fail to supply quality raw materials and we or our collaborators were unable to contract with alternative suppliers for these raw materials on acceptable terms, our ability to have our products manufactured to meet clinical and commercial requirements would be adversely affected. In an effort to increase the availability of needed medical and other supplies and products in connection with the COVID-19 pandemic, we and our suppliers may elect to, or governments may require us or our suppliers to, allocate raw materials used in manufacturing or manufacturing capacity (for example pursuant to the U.S. Defense Production Act) in a way that adversely affects our ability to have our products manufactured to meet clinical and commercial requirements. In addition, if any of the parties in our supply chain are adversely impacted by the evolving effects of the COVID-19 pandemic, such as staffing shortages, productions slowdowns and/or disruptions in delivery systems, there could be disruptions and delays in the manufacturing and supply of our products and product candidates. While we believe that the existing supplies of our products and our and our collaborators’ contract manufacturing relationships will be sufficient to accommodate current clinical and commercial needs, we or our collaborators may need to obtain additional manufacturing arrangements or increase manufacturing capability to meet potential future commercial needs, which could require additional capital investment or cause delays. We cannot assure you that we can enter into additional manufacturing arrangements on commercially reasonable terms or at all. Forecasting demand for a new product or for a newly-approved territory or indication for an existing product can be challenging. If demand for a product exceeds our estimates or if our commercial manufacturers are unable or unwilling to increase production capacity commensurate with demand, our commercialization of the affected product could be negatively impacted by short-term product supply challenges. Supply challenges would adversely impact our revenues and could negatively affect our relationships with patients and healthcare professionals. In addition, 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 and collaborators’ ability to launch and commercialize our products, including TUKYSA, in additional markets where they have obtained regulatory approval. In order to obtain regulatory approval of any product candidate or regulatory approval of any product in a new jurisdiction, the suppliers for that product or product candidate must obtain approval to manufacture and supply product. In addition, the facilities utilized to manufacture the product or product candidate will be subject to pre-approval regulatory inspections. Any delay or failure in generating the chemistry, manufacturing and control data required in connection with any application for regulatory approval, or challenges in the regulatory inspection process, could negatively impact our ability to meet our anticipated regulatory submission dates, delay any approval decisions and/or negatively affect our ability to obtain regulatory approval at all. Any failure of us, our collaborators or a manufacturer to obtain approval to manufacture and supply product in a jurisdiction, or to obtain and distribute adequate supplies of the product, on a timely basis or in accordance with applicable specifications and local requirements could negatively impact our ability to successfully launch and commercialize the applicable product in that jurisdiction 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 in meeting 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 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 revenues and increase our costs. We sell ADCETRIS, PADCEV and TIVDAK through a limited number of specialty distributors. Healthcare providers order ADCETRIS, PADCEV and TIVDAK through these distributors. We receive orders from distributors and generally ship product directly to the healthcare provider. We sell TUKYSA through a distribution network of specialty pharmacies, integrated delivery network hospitals and practices that dispense in the office. These distributors and distribution network partners do not set or determine demand for our products; however, our ability to effectively commercialize our products will depend, in part, on their performance. If we lost a major distributor or partner, revenue during any period of disruption could suffer and we might incur additional costs. In addition, business disruptions arising from the COVID-19 pandemic could negatively affect the ability of some of our distributors or distribution network partners to pay amounts owed to us in a timely manner or at all. We are dependent on third parties such as contract research organizations, medical institutions and clinical investigators to assist with the design, review, management and conduct of our clinical trials and other activities. We also depend on third parties such as contract research organizations, medical institutions and clinical investigators to assist with the design, review, management and conduct of our clinical trials and other activities. Our reliance on these third parties reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with regulatory requirements, GCP and study protocols. To the extent these third parties fail to successfully carry out their contractual duties or meet expected deadlines, our clinical trials and regulatory filings may be negatively impacted including possible impacts to data, results, or conclusions, increased costs, and delays to regulatory timelines, which may harm our reputation and business. 52 53 Risks Related to Intellectual Property and Litigation If we are unable to enforce our intellectual property rights or if we fail to sustain and further procure additional 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 U.S. 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. The standards that the U.S. Patent and Trademark Office, or USPTO, and patent offices in other countries 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, patents 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. For example, the U.S. Federal Circuit Court of Appeals and the U.S. Supreme Court have 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. These changes and any future changes to the patent system in the U.S. or in other countries 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, results of operations, financial condition and growth prospects. In addition, changes to patent laws may be applied retroactively to affect the validity, enforceability, or term of our patents. Patent protection outside the U.S. is particularly uncertain and costly. The laws of some countries may not protect our intellectual property rights to the same extent as U.S. laws, and many companies in our industry have encountered significant difficulties in protecting and defending such rights in these jurisdictions. We rely on external agents to perform certain activities to maintain our patents. Although we carefully select and oversee these agents, the failure of an agent to properly perform these maintenance activities, whether through mistake or otherwise, could adversely affect our intellectual property rights. Additionally, if we do not control all of the intellectual property rights in-licensed to us with respect to a drug candidate and the entity that controls the intellectual property rights does not adequately protect those rights, our rights may be impaired, which may impact our ability to develop, market and commercialize the in-licensed drug candidate. 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 also 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. In addition, under proposed or adopted policies in the EU, information related to clinical trials and clinical trial data that historically were considered confidential are now increasingly subject to public disclosure. The move toward public disclosure of this information could adversely affect our business in many ways, such as by requiring the disclosure of confidential methodologies for product development, preventing us from obtaining intellectual property right protection for innovations, requiring significant resources to prevent others from violating our intellectual property rights, adding complexity to compliance with applicable data privacy regulations, and enabling competitors to use our data to gain approvals for their own products. 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. Due to the amount of intellectual property in our field, we cannot be certain that we do not infringe intellectual property rights of competitors or that we will not infringe intellectual property rights of competitors granted or created in the future. 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. If it is ultimately determined that our products infringe a third-party’s intellectual property rights, we may be required to pay substantial damages, including lost profits, royalties, treble damages, attorneys’ fees and costs. 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 unless and until we obtain a license from the owner of the relevant technology or other intellectual property rights, or we may be forced to undertake costly design-arounds, if feasible. If such a license is available at all, it may require us to pay substantial royalties or other fees. We are or may be from time to time involved in the defense and enforcement of our patent or other intellectual property rights in a court of law, USPTO interference, inter partes review, or IPR, post-grant review, or PGR, or reexamination proceeding, foreign opposition proceeding or related legal and administrative proceeding in the U.S. 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 Patent Trial and Appeal Board, or PTAB, of the USPTO 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, results of operations, financial condition and growth prospects. 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. 54 55 Risks Related to Intellectual Property and Litigation If we are unable to enforce our intellectual property rights or if we fail to sustain and further procure additional 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 U.S. 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. The standards that the U.S. Patent and Trademark Office, or USPTO, and patent offices in other countries 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, patents 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. For example, the U.S. Federal Circuit Court of Appeals and the U.S. Supreme Court have 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. These changes and any future changes to the patent system in the U.S. or in other countries 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, results of operations, financial condition and growth prospects. In addition, changes to patent laws may be applied retroactively to affect the validity, enforceability, or term of our patents. Patent protection outside the U.S. is particularly uncertain and costly. The laws of some countries may not protect our intellectual property rights to the same extent as U.S. laws, and many companies in our industry have encountered significant difficulties in protecting and defending such rights in these jurisdictions. We rely on external agents to perform certain activities to maintain our patents. Although we carefully select and oversee these agents, the failure of an agent to properly perform these maintenance activities, whether through mistake or otherwise, could adversely affect our intellectual property rights. Additionally, if we do not control all of the intellectual property rights in-licensed to us with respect to a drug candidate and the entity that controls the intellectual property rights does not adequately protect those rights, our rights may be impaired, which may impact our ability to develop, market and commercialize the in-licensed drug candidate. 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 also 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. In addition, under proposed or adopted policies in the EU, information related to clinical trials and clinical trial data that historically were considered confidential are now increasingly subject to public disclosure. The move toward public disclosure of this information could adversely affect our business in many ways, such as by requiring the disclosure of confidential methodologies for product development, preventing us from obtaining intellectual property right protection for innovations, requiring significant resources to prevent others from violating our intellectual property rights, adding complexity to compliance with applicable data privacy regulations, and enabling competitors to use our data to gain approvals for their own products. 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. Due to the amount of intellectual property in our field, we cannot be certain that we do not infringe intellectual property rights of competitors or that we will not infringe intellectual property rights of competitors granted or created in the future. 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. If it is ultimately determined that our products infringe a third-party’s intellectual property rights, we may be required to pay substantial damages, including lost profits, royalties, treble damages, attorneys’ fees and costs. 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 unless and until we obtain a license from the owner of the relevant technology or other intellectual property rights, or we may be forced to undertake costly design-arounds, if feasible. If such a license is available at all, it may require us to pay substantial royalties or other fees. We are or may be from time to time involved in the defense and enforcement of our patent or other intellectual property rights in a court of law, USPTO interference, inter partes review, or IPR, post-grant review, or PGR, or reexamination proceeding, foreign opposition proceeding or related legal and administrative proceeding in the U.S. 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 Patent Trial and Appeal Board, or PTAB, of the USPTO 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, results of operations, financial condition and growth prospects. 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. 54 55 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, TUKYSA, 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 and other payment obligations, 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. We have been and may in the future be subject to litigation, which could result in substantial expenses and damages and may divert management’s time and attention from our business. We are engaged in multiple legal disputes with Daiichi Sankyo Co. Ltd., or Daiichi Sankyo. We are in a dispute with Daiichi Sankyo regarding the ownership of certain technology used by Daiichi Sankyo in its cancer drug ENHERTU and certain product candidates. An arbitration hearing relating to the dispute was conducted in June 2021. Recently, the arbitration hearing record was reopened by the arbitrator to consider additional evidence. As a result, the decision may occur after the first quarter of 2022. In addition, we filed a complaint in the U.S. District Court for the Eastern District of Texas to commence an action for infringement of our U.S. Patent No. 10,808,039, or the ‘039 Patent, by Daiichi Sankyo’s importation into, offer for sale, sale, and use in the U.S. of ENHERTU. Daiichi Sankyo (as well as Daiichi Sankyo, Inc. and AstraZeneca Pharmaceuticals, LP, or AstraZeneca) subsequently filed an action in the U.S. District Court for the District of Delaware seeking a declaratory judgment that ENHERTU does not infringe the ‘039 Patent. The Delaware action has been stayed by court order. Daiichi Sankyo, Inc. and AstraZeneca also filed two Petitions for Post-Grant Review with the U.S. Patent Office seeking to have claims of the ‘039 Patent cancelled as unpatentable. On June 24, 2021, the U.S. Patent Office issued a decision denying both Petitions for Post-Grant Review. The trial in the patent infringement case in Texas is scheduled to begin on April 4, 2022. As a result of these disputes, we have incurred and will continue to incur litigation expenses. In addition, from time to time, we may become involved in other 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 and other 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, we may be subject to additional claims and counterclaims that may result in liabilities or require us to take or refrain from certain actions, 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 business, results of operations, financial condition and growth prospects. Successful challenges to our patent or other intellectual property rights 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. In addition, the uncertainty associated with litigation could lead to increased volatility in our stock price. Risks Related to Our Operations, Managing Our Growth and Other Risks The evolving effects of the COVID-19 pandemic and associated global economic instability could have further adverse effects on our business, including our commercialization efforts, supply chain, regulatory activities, clinical development activities and other business operations. Our business is currently being adversely affected and could be materially and adversely affected in the future by the evolving effects of the COVID-19 pandemic. Our ongoing increased reliance on personnel working from home may present operational and workplace culture challenges, negatively impact productivity or disrupt, delay or otherwise adversely impact our business. This could also increase our cybersecurity risk, create data accessibility concerns and make us more susceptible to communication disruptions, any of which could adversely impact our business operations. In addition, our oversight of third-party manufacturers is currently being conducted primarily by virtual means, which may increase the chance of a manufacturing quality issue. Our field-based personnel are using a mix of in-person interactions and electronic communications, such as emails, phone calls and video conferences, to support healthcare providers and patients. Many healthcare professionals are facing additional demands on their time during the ongoing COVID-19 pandemic. We expect the different quality of electronic interactions as compared with in-person interactions, as well as the reduced quantity of interactions during the COVID-19 pandemic, to reduce the effectiveness of our sales personnel, as well as those of our collaborators, which could negatively affect our product sales and those of our collaborators, as well as physician awareness of our products. In this regard, we believe that the need to conduct some of our activities virtually is negatively impacting our ability to connect with key customers, including those familiar with competitive products, and our ability to conduct payor engagements. We face a number of challenges that will limit our ability to fully resume in-person interactions, including increasing COVID-19 infection rates due to coronavirus mutations and/or low vaccination rates in different areas or otherwise, the need to navigate varying restrictions for entering healthcare facilities and the pandemic's impacts on employee childcare arrangements. In addition, we may subsequently decide or be forced to resume a more restrictive remote work model, whether as a result of further spikes or surges in COVID-19 infection or hospitalization rates or otherwise. Moreover, the long-term effects of the COVID-19 pandemic are also unknown and it is possible that following the pandemic, healthcare institutions could alter their policies with respect to in person visits by pharmaceutical company representatives. COVID-19 related restrictions could also present product distribution challenges as we utilize recently initiated distribution channels for TUKYSA. The evolving effects of the COVID-19 pandemic appear to have negatively affected and may continue to negatively affect our product sales due to challenges in patient access to healthcare settings, loss of individual health insurance coverage, and inability to access government healthcare programs due to backlogs, some or all of which appear to have negatively affected diagnosis rates, may affect side effect management and course of treatment and may increase enrollment in our patient support programs. In this regard, impacts associated with the COVID-19 pandemic appear to have led to a reduction in the rate of Hodgkin lymphoma diagnoses, may have adversely affected diagnosis rates of other cancers, and may further adversely affect rates of cancer diagnoses in the future. We also expect that the conversion of medical conferences to a virtual format may reduce our ability to effectively disseminate scientific information about our products, which may result in decreased physician awareness of our products, their approved indications and their efficacy and safety. 56 57 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, TUKYSA, 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 and other payment obligations, 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. We have been and may in the future be subject to litigation, which could result in substantial expenses and damages and may divert management’s time and attention from our business. We are engaged in multiple legal disputes with Daiichi Sankyo Co. Ltd., or Daiichi Sankyo. We are in a dispute with Daiichi Sankyo regarding the ownership of certain technology used by Daiichi Sankyo in its cancer drug ENHERTU and certain product candidates. An arbitration hearing relating to the dispute was conducted in June 2021. Recently, the arbitration hearing record was reopened by the arbitrator to consider additional evidence. As a result, the decision may occur after the first quarter of 2022. In addition, we filed a complaint in the U.S. District Court for the Eastern District of Texas to commence an action for infringement of our U.S. Patent No. 10,808,039, or the ‘039 Patent, by Daiichi Sankyo’s importation into, offer for sale, sale, and use in the U.S. of ENHERTU. Daiichi Sankyo (as well as Daiichi Sankyo, Inc. and AstraZeneca Pharmaceuticals, LP, or AstraZeneca) subsequently filed an action in the U.S. District Court for the District of Delaware seeking a declaratory judgment that ENHERTU does not infringe the ‘039 Patent. The Delaware action has been stayed by court order. Daiichi Sankyo, Inc. and AstraZeneca also filed two Petitions for Post-Grant Review with the U.S. Patent Office seeking to have claims of the ‘039 Patent cancelled as unpatentable. On June 24, 2021, the U.S. Patent Office issued a decision denying both Petitions for Post-Grant Review. The trial in the patent infringement case in Texas is scheduled to begin on April 4, 2022. As a result of these disputes, we have incurred and will continue to incur litigation expenses. In addition, from time to time, we may become involved in other 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 and other 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, we may be subject to additional claims and counterclaims that may result in liabilities or require us to take or refrain from certain actions, 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 business, results of operations, financial condition and growth prospects. Successful challenges to our patent or other intellectual property rights 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. In addition, the uncertainty associated with litigation could lead to increased volatility in our stock price. Risks Related to Our Operations, Managing Our Growth and Other Risks The evolving effects of the COVID-19 pandemic and associated global economic instability could have further adverse effects on our business, including our commercialization efforts, supply chain, regulatory activities, clinical development activities and other business operations. Our business is currently being adversely affected and could be materially and adversely affected in the future by the evolving effects of the COVID-19 pandemic. Our ongoing increased reliance on personnel working from home may present operational and workplace culture challenges, negatively impact productivity or disrupt, delay or otherwise adversely impact our business. This could also increase our cybersecurity risk, create data accessibility concerns and make us more susceptible to communication disruptions, any of which could adversely impact our business operations. In addition, our oversight of third-party manufacturers is currently being conducted primarily by virtual means, which may increase the chance of a manufacturing quality issue. Our field-based personnel are using a mix of in-person interactions and electronic communications, such as emails, phone calls and video conferences, to support healthcare providers and patients. Many healthcare professionals are facing additional demands on their time during the ongoing COVID-19 pandemic. We expect the different quality of electronic interactions as compared with in-person interactions, as well as the reduced quantity of interactions during the COVID-19 pandemic, to reduce the effectiveness of our sales personnel, as well as those of our collaborators, which could negatively affect our product sales and those of our collaborators, as well as physician awareness of our products. In this regard, we believe that the need to conduct some of our activities virtually is negatively impacting our ability to connect with key customers, including those familiar with competitive products, and our ability to conduct payor engagements. We face a number of challenges that will limit our ability to fully resume in-person interactions, including increasing COVID-19 infection rates due to coronavirus mutations and/or low vaccination rates in different areas or otherwise, the need to navigate varying restrictions for entering healthcare facilities and the pandemic's impacts on employee childcare arrangements. In addition, we may subsequently decide or be forced to resume a more restrictive remote work model, whether as a result of further spikes or surges in COVID-19 infection or hospitalization rates or otherwise. Moreover, the long-term effects of the COVID-19 pandemic are also unknown and it is possible that following the pandemic, healthcare institutions could alter their policies with respect to in person visits by pharmaceutical company representatives. COVID-19 related restrictions could also present product distribution challenges as we utilize recently initiated distribution channels for TUKYSA. The evolving effects of the COVID-19 pandemic appear to have negatively affected and may continue to negatively affect our product sales due to challenges in patient access to healthcare settings, loss of individual health insurance coverage, and inability to access government healthcare programs due to backlogs, some or all of which appear to have negatively affected diagnosis rates, may affect side effect management and course of treatment and may increase enrollment in our patient support programs. In this regard, impacts associated with the COVID-19 pandemic appear to have led to a reduction in the rate of Hodgkin lymphoma diagnoses, may have adversely affected diagnosis rates of other cancers, and may further adversely affect rates of cancer diagnoses in the future. We also expect that the conversion of medical conferences to a virtual format may reduce our ability to effectively disseminate scientific information about our products, which may result in decreased physician awareness of our products, their approved indications and their efficacy and safety. 56 57 Some of the sites participating in our clinical trials are affected by site closings, reduced capacity, staffing shortages or other effects of the COVID-19 pandemic. At some sites, we are experiencing impacts to our ability to monitor patients, activate sites, screen and enroll patients, complete site monitoring and manage samples. The extent of the impact on a particular clinical trial depends on the current stage of activities at a given site, for example study start up versus post-enrollment, and the number of impacted sites participating in that trial. Impacts on diagnosis rates associated with the COVID-19 pandemic may also negatively impact enrollment. While we do not at this time anticipate the need to revise our publicly reported projected clinical milestone dates as a result of the effects of the COVID-19 pandemic, there may continue to be adverse impacts to our clinical study timelines, which, depending upon the duration and severity of the evolving effects of the COVID-19 pandemic, could ultimately delay data availability. Due to the suspension of data monitoring activities at sites that do not currently allow remote monitoring, as well as impacts on the ability to monitor patients, maintain patient treatment according to the trial protocols and manage samples, there is also the potential for negative impacts on data quality. While we are actively utilizing digital monitoring measures and other mitigations designed to prevent negative data quality impacts, if there were in fact a negative impact on data quality, we or our collaborators could be required to repeat, extend the duration of, or increase the size of clinical trials, which could significantly delay potential commercialization and require greater expenditures. We expect that similar factors will impact clinical studies operationalized by our collaborators. In addition, many of our non-essential on-site research activities are currently significantly reduced as a result of the COVID-19 pandemic, which may negatively impact the number of investigational new drug application, or IND, candidates entering our clinical pipeline in future years. The effects of the COVID-19 pandemic continue to rapidly evolve. These effects have increased market volatility and could result in a significant long-term disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, economic instability resulting from the effects of the COVID-19 pandemic could materially affect our business and the value of our common stock. The extent to which the evolving effects of the COVID-19 pandemic impact our business will depend on future developments that are highly uncertain, such as coronavirus variants that may prove to be especially contagious or virulent, the ultimate duration and severity of the pandemic, government actions, such as travel restrictions, quarantines and social distancing requirements in the U.S. and in other countries, business closures or business disruptions and the effectiveness of vaccine programs and other actions taken to contain and treat the disease. Accordingly, we do not yet know the full extent of potential effects from the pandemic. However, these effects could materially and adversely affect our business, results of operations, financial condition and growth prospects. In addition, the evolving effects of the COVID-19 pandemic may also heighten many of the other risks described elsewhere in this “Risk Factors” section. It is also possible that future global pandemics could occur and materially and adversely affect our business, results of operations, financial condition and growth prospects. If we are unable to manage our growth, our business, results of operations, financial condition and growth 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 and complexity of our operations. This rapid growth and additional complexity places significant demands on our management and other personnel, our operational and financial resources and our third party suppliers. Our current and planned personnel, operational and financial systems, procedures, controls and suppliers may not be adequate to support our growth, and we may experience operating inefficiencies, delays, control deficiencies, compliance issues or other problems. In addition, we may not be able to achieve any necessary growth objectives in a timely or cost-effective manner, or at all, and may not realize a positive return on our investment. If we are unable to manage our growth effectively, our business, results of operations, financial condition and growth prospects may be adversely affected. • diverse clinical, drug safety, drug quality, drug supply, healthcare compliance and other pharmaceutical regulatory regimes, and any future changes to such requirements, in the countries and regions where we are located or do business; • multiple, differing and changing laws and regulations such as tax laws, privacy regulations, tariffs, trade restrictions, export and import restrictions, employment, immigration and labor laws, corporate laws, and other governmental approvals, permits and licenses; 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; political tensions, economic weakness, including inflation, or political or economic instability in particular economies and markets; currency fluctuations, which could result in increased operating expenses or reduced revenues; challenges inherent in efficiently managing employees in diverse geographies and different languages; challenges in adapting systems, policies, benefits and compliance programs for different countries; reliance on vendors who are located far from our headquarters and with whom we have not worked previously; • • • • • • • • and workforce uncertainty in countries where labor unrest is more common. Additionally, the U.S. Foreign Corrupt Practices Act, or FCPA, and the anti-bribery laws and regulations of other countries are extensive and far-reaching. We must ensure that accurate records and controls required by the FCPA are maintained with respect to the activities of our employees, distributors and service providers in all of the countries where we operate. In the course of conducting operations internationally, we interact with regulatory authorities, as well as with healthcare professionals who are often employed by governments and may be deemed to be foreign officials under the FCPA. Any interactions with any such third parties that are found to be in violation of relevant laws could result in substantial fines and penalties and could materially harm our business. Emerging-market countries may be especially vulnerable to periods of political, legal, and financial instability and may have a higher risk of corrupt business practices. As we expand our international operations, we continue to supplement and expand our global compliance program, controls, policies and procedures. However, there can be no assurance that such measures will work effectively at all times or protect us against liability. There is a risk that acts committed by our employees, agents, distributors, collaborators or third-party providers might violate the FCPA and other anti-corruption laws and that we might be held responsible. 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. Our failure, or the failure of others who we engage to act on our behalf, to comply with the laws and regulations of the countries in which we operate, or will operate in the future, could result in criminal and civil penalties, other remedial measures and reputational damage, all of which could materially harm our business, financial condition, results of operations, and prospects. As we continue to expand our footprint and activities internationally, our exposure to compliance risks under the FCPA and other similar laws will likewise increase. As a business, we do not have significant experience conducting operations outside of the U.S. and Canada. We might not be successful in establishing and conducting commercial and other operations in these regions and may not realize a positive return on our investment. Our failure to successfully do so could have a material adverse effect on our business, results of operations, financial condition and growth prospects. These and other risks associated with Risks associated with our expanding operations in countries outside the U.S. could materially adversely affect expanding our international operations, as described elsewhere in these risk factors, could have a material adverse effect our business. on our business, results of operations, financial condition and growth prospects. We have operations outside the U.S., and we plan to continue expanding our operations internationally. For example, we are continuing to expand our commercial infrastructure in Europe and Canada. Consequently, we are, and will increasingly be, subject to risks and complexities related to operating internationally, including: • the increased complexity and costs inherent in managing international operations, including in geographically disparate locations; 58 59 Some of the sites participating in our clinical trials are affected by site closings, reduced capacity, staffing shortages or other effects of the COVID-19 pandemic. At some sites, we are experiencing impacts to our ability to monitor patients, activate sites, screen and enroll patients, complete site monitoring and manage samples. The extent of the impact on a particular clinical trial depends on the current stage of activities at a given site, for example study start up versus post-enrollment, and the number of impacted sites participating in that trial. Impacts on diagnosis rates associated with the COVID-19 pandemic may also negatively impact enrollment. While we do not at this time anticipate the need to revise our publicly reported projected clinical milestone dates as a result of the effects of the COVID-19 pandemic, there may continue to be adverse impacts to our clinical study timelines, which, depending upon the duration and severity of the evolving effects of the COVID-19 pandemic, could ultimately delay data availability. Due to the suspension of data monitoring activities at sites that do not currently allow remote monitoring, as well as impacts on the ability to monitor patients, maintain patient treatment according to the trial protocols and manage samples, there is also the potential for negative impacts on data quality. While we are actively utilizing digital monitoring measures and other mitigations designed to prevent negative data quality impacts, if there were in fact a negative impact on data quality, we or our collaborators could be required to repeat, extend the duration of, or increase the size of clinical trials, which could significantly delay potential commercialization and require greater expenditures. We expect that similar factors will impact clinical studies operationalized by our collaborators. In addition, many of our non-essential on-site research activities are currently significantly reduced as a result of the COVID-19 pandemic, which may negatively impact the number of investigational new drug application, or IND, candidates entering our clinical pipeline in future years. The effects of the COVID-19 pandemic continue to rapidly evolve. These effects have increased market volatility and could result in a significant long-term disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, economic instability resulting from the effects of the COVID-19 pandemic could materially affect our business and the value of our common stock. The extent to which the evolving effects of the COVID-19 pandemic impact our business will depend on future developments that are highly uncertain, such as coronavirus variants that may prove to be especially contagious or virulent, the ultimate duration and severity of the pandemic, government actions, such as travel restrictions, quarantines and social distancing requirements in the U.S. and in other countries, business closures or business disruptions and the effectiveness of vaccine programs and other actions taken to contain and treat the disease. Accordingly, we do not yet know the full extent of potential effects from the pandemic. However, these effects could materially and adversely affect our business, results of operations, financial condition and growth prospects. In addition, the evolving effects of the COVID-19 pandemic may also heighten many of the other risks described elsewhere in this “Risk Factors” section. It is also possible that future global pandemics could occur and materially and adversely affect our business, results of operations, financial condition and growth prospects. If we are unable to manage our growth, our business, results of operations, financial condition and growth 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 and complexity of our operations. This rapid growth and additional complexity places significant demands on our management and other personnel, our operational and financial resources and our third party suppliers. Our current and planned personnel, operational and financial systems, procedures, controls and suppliers may not be adequate to support our growth, and we may experience operating inefficiencies, delays, control deficiencies, compliance issues or other problems. In addition, we may not be able to achieve any necessary growth objectives in a timely or cost-effective manner, or at all, and may not realize a positive return on our investment. If we are unable to manage our growth effectively, our business, results of operations, financial condition and growth prospects may be adversely affected. Risks associated with our expanding operations in countries outside the U.S. could materially adversely affect our business. We have operations outside the U.S., and we plan to continue expanding our operations internationally. For example, we are continuing to expand our commercial infrastructure in Europe and Canada. Consequently, we are, and will increasingly be, subject to risks and complexities related to operating internationally, including: • the increased complexity and costs inherent in managing international operations, including in geographically disparate locations; • diverse clinical, drug safety, drug quality, drug supply, healthcare compliance and other pharmaceutical regulatory regimes, and any future changes to such requirements, in the countries and regions where we are located or do business; • multiple, differing and changing laws and regulations such as tax laws, privacy regulations, tariffs, trade restrictions, export and import restrictions, employment, immigration and labor laws, corporate laws, and other governmental approvals, permits and licenses; • • • • • • • • 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; political tensions, economic weakness, including inflation, or political or economic instability in particular economies and markets; currency fluctuations, which could result in increased operating expenses or reduced revenues; challenges inherent in efficiently managing employees in diverse geographies and different languages; challenges in adapting systems, policies, benefits and compliance programs for different countries; reliance on vendors who are located far from our headquarters and with whom we have not worked previously; and workforce uncertainty in countries where labor unrest is more common. Additionally, the U.S. Foreign Corrupt Practices Act, or FCPA, and the anti-bribery laws and regulations of other countries are extensive and far-reaching. We must ensure that accurate records and controls required by the FCPA are maintained with respect to the activities of our employees, distributors and service providers in all of the countries where we operate. In the course of conducting operations internationally, we interact with regulatory authorities, as well as with healthcare professionals who are often employed by governments and may be deemed to be foreign officials under the FCPA. Any interactions with any such third parties that are found to be in violation of relevant laws could result in substantial fines and penalties and could materially harm our business. Emerging-market countries may be especially vulnerable to periods of political, legal, and financial instability and may have a higher risk of corrupt business practices. As we expand our international operations, we continue to supplement and expand our global compliance program, controls, policies and procedures. However, there can be no assurance that such measures will work effectively at all times or protect us against liability. There is a risk that acts committed by our employees, agents, distributors, collaborators or third-party providers might violate the FCPA and other anti-corruption laws and that we might be held responsible. 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. Our failure, or the failure of others who we engage to act on our behalf, to comply with the laws and regulations of the countries in which we operate, or will operate in the future, could result in criminal and civil penalties, other remedial measures and reputational damage, all of which could materially harm our business, financial condition, results of operations, and prospects. As we continue to expand our footprint and activities internationally, our exposure to compliance risks under the FCPA and other similar laws will likewise increase. As a business, we do not have significant experience conducting operations outside of the U.S. and Canada. We might not be successful in establishing and conducting commercial and other operations in these regions and may not realize a positive return on our investment. Our failure to successfully do so could have a material adverse effect on our business, results of operations, financial condition and growth prospects. These and other risks associated with expanding our international operations, as described elsewhere in these risk factors, could have a material adverse effect on our business, results of operations, financial condition and growth prospects. 58 59 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 key personnel. For example, we have scientific personnel with significant and unique expertise in monoclonal antibodies, complementary products, product candidates, technologies or businesses. We may spend significant amounts, issue dilutive securities and/or assume or incur significant debt obligations in connection with these transactions. In addition, these transactions, including our recent in-license of development and commercialization rights to disitamab vedotin and any potential future acquisitions or licensing transactions, entail numerous risks, including: • • • • • • • • • • • • • 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, compliance programs and personnel with our existing business; acquired or licensed products, product candidates or technologies, such as disitamab vedotin, may not perform as expected and may not result in regulatory approvals; failure to successfully develop and commercialize acquired or licensed products, product candidates or technologies or to achieve other strategic objectives; 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; uncertainties in our ability to maintain key business relationships of any acquired companies; difficulty implementing and maintaining effective internal control over financial reporting of businesses that we acquire; exposure to unanticipated liabilities of acquired companies or companies in which we invest; the potential need to write down assets or recognize impairment charges or significant amortization expenses; 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, business synergies or other benefits that we anticipated, within the expected timeframe or at all. 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 costs or other negative effects on our business. 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 we 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 our recent in-license of development and commercialization rights to disitamab vedotin, could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Moreover, we may not be able to identify, negotiate and close strategic acquisition or in-licensing opportunities in the future, 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 resources, compete with us for these opportunities. Failure to effectively advance our business strategy and manage our operations through acquisitions or in-licensing transactions could have a material adverse effect on our business, results of operations, financial condition, and growth prospects. 60 61 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 and other ADCs and related technologies, and our products and product candidates. The loss of the services of any one of the principal members of our managerial, scientific or other key 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 biotechnology employees. In order to continue to commercialize our products, and advance the development and commercialization of our product candidates, we will be required to expand our workforce and management team, particularly in the areas of manufacturing, clinical trials, regulatory affairs, business development, sales and marketing, both in the U.S. 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 with increasing reliance on remote work arrangements, the geographic market in which we compete for talent is expanding. Our ability to attract and retain talent in this competitive environment may be further complicated by evolving employment trends arising from the COVID-19 pandemic, including an increased preference for remote, alternative or flexible work arrangements. Our failure to effectively compete for and retain talent could negatively affect our ability to achieve our business objectives and have a material adverse effect on our business, results of operations, financial condition and growth prospects. If our information technology systems or data are or were compromised, we could experience interruptions to our operations, legal claims, liability, harm to our reputation, a loss of sales and other adverse impacts. We and our collaborators, suppliers and service providers rely on information technology systems to keep financial and other records, capture laboratory and clinical trial data, support internal and external communications and operate other critical functions. Despite our security measures, these systems are potentially vulnerable to malware, cyber-attacks, security breaches, natural disasters, terrorism, software and hardware failures, telecommunication and electrical failures, and similar issues. If such an event were to occur, it could result in material interruptions to our operations, loss of data or applications, loss of sales, significant extra expenses to restore data or systems, reputational harm and diversion of funds. For example, the loss of preclinical study or clinical trial data could result in delays in our product development or regulatory approval efforts and significantly increase our costs in order to recover or reproduce the data. The effects of the COVID-19 pandemic have intensified our dependence on information technology systems as many of our critical business activities are currently being conducted remotely and our increased reliance on personnel working from home could increase our cybersecurity risk. In addition to traditional computer “hackers” and threat actors, sophisticated nation-state and nation-state supported actors now engage in attacks (including advanced persistent threat intrusions). Ransomware attacks, including those from organized criminal threat actors, nation-states and nation-state supported actors, are becoming increasingly prevalent and severe. To alleviate the financial, operational and reputational impact of a ransomware attack, it may be preferable to make extortion payments, but we may be unwilling or unable to do so (including, for example, if applicable laws or regulations prohibit such payments). Similarly, supply chain attacks have increased in frequency and severity. We cannot guarantee that third parties and infrastructure in our supply chain have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Although, to our knowledge, we have not experienced any material security breach to date, any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. While we have taken steps to protect the security of the personal data and other sensitive information that we handle, there can be no assurance that any security measures will be effective against current or future security threats. Any unauthorized or accidental access to, or disclosure, modification, misuse, or loss of, personal or other data could result in legal claims or proceedings, liability, significant regulatory penalties, and loss of trade secrets or other intellectual property. In addition, such an event could disrupt our operations, damage our reputation and delay development of our product candidates. We have engaged in, and may in the future engage in, strategic transactions that increase our capital If we lose our key personnel or are unable to attract and retain additional qualified personnel, our future requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities and subject us to other growth and ability to compete would suffer. risks. • • • • • • • • • • • • • We actively evaluate various strategic transactions on an ongoing basis, including licensing or otherwise acquiring complementary products, product candidates, technologies or businesses. We may spend significant amounts, issue dilutive securities and/or assume or incur significant debt obligations in connection with these transactions. In addition, these transactions, including our recent in-license of development and commercialization rights to disitamab vedotin and any potential future acquisitions or licensing transactions, entail numerous risks, including: risks associated with satisfying the closing conditions relating to such transactions and realizing their anticipated benefits; existing business; increased operating expenses and cash requirements; difficulty integrating acquired technologies, products, operations, compliance programs and personnel with our acquired or licensed products, product candidates or technologies, such as disitamab vedotin, may not perform as expected and may not result in regulatory approvals; failure to successfully develop and commercialize acquired or licensed products, product candidates or technologies or to achieve other strategic objectives; the potential disruption of our historical core business; integrating the business, technology or product; retention of key employees; diversion of management’s attention in connection with both negotiating the acquisition or license and uncertainties in our ability to maintain key business relationships of any acquired companies; difficulty implementing and maintaining effective internal control over financial reporting of businesses that we exposure to unanticipated liabilities of acquired companies or companies in which we invest; the potential need to write down assets or recognize impairment charges or significant amortization expenses; acquire; 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, business synergies or other benefits that we anticipated, within the expected timeframe or at all. 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 costs or other negative effects on our business. 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 we 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 our recent in-license of development and commercialization rights to disitamab vedotin, could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Moreover, we may not be able to identify, negotiate and close strategic acquisition or in-licensing opportunities in the future, 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 resources, compete with us for these opportunities. Failure to effectively advance our business strategy and manage our operations through acquisitions or in-licensing transactions could have a material adverse effect on our business, results of operations, financial condition, and growth prospects. We are highly dependent on the efforts and abilities of the principal members of our senior management and other key personnel. For example, we have scientific personnel with significant and unique expertise in monoclonal antibodies, ADCs and related technologies, and our products and product candidates. The loss of the services of any one of the principal members of our managerial, scientific or other key 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 biotechnology employees. In order to continue to commercialize our products, and advance the development and commercialization of our product candidates, we will be required to expand our workforce and management team, particularly in the areas of manufacturing, clinical trials, regulatory affairs, business development, sales and marketing, both in the U.S. 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 with increasing reliance on remote work arrangements, the geographic market in which we compete for talent is expanding. Our ability to attract and retain talent in this competitive environment may be further complicated by evolving employment trends arising from the COVID-19 pandemic, including an increased preference for remote, alternative or flexible work arrangements. Our failure to effectively compete for and retain talent could negatively affect our ability to achieve our business objectives and have a material adverse effect on our business, results of operations, financial condition and growth prospects. If our information technology systems or data are or were compromised, we could experience interruptions to our operations, legal claims, liability, harm to our reputation, a loss of sales and other adverse impacts. We and our collaborators, suppliers and service providers rely on information technology systems to keep financial and other records, capture laboratory and clinical trial data, support internal and external communications and operate other critical functions. Despite our security measures, these systems are potentially vulnerable to malware, cyber-attacks, security breaches, natural disasters, terrorism, software and hardware failures, telecommunication and electrical failures, and similar issues. If such an event were to occur, it could result in material interruptions to our operations, loss of data or applications, loss of sales, significant extra expenses to restore data or systems, reputational harm and diversion of funds. For example, the loss of preclinical study or clinical trial data could result in delays in our product development or regulatory approval efforts and significantly increase our costs in order to recover or reproduce the data. The effects of the COVID-19 pandemic have intensified our dependence on information technology systems as many of our critical business activities are currently being conducted remotely and our increased reliance on personnel working from home could increase our cybersecurity risk. In addition to traditional computer “hackers” and threat actors, sophisticated nation-state and nation-state supported actors now engage in attacks (including advanced persistent threat intrusions). Ransomware attacks, including those from organized criminal threat actors, nation-states and nation-state supported actors, are becoming increasingly prevalent and severe. To alleviate the financial, operational and reputational impact of a ransomware attack, it may be preferable to make extortion payments, but we may be unwilling or unable to do so (including, for example, if applicable laws or regulations prohibit such payments). Similarly, supply chain attacks have increased in frequency and severity. We cannot guarantee that third parties and infrastructure in our supply chain have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Although, to our knowledge, we have not experienced any material security breach to date, any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. While we have taken steps to protect the security of the personal data and other sensitive information that we handle, there can be no assurance that any security measures will be effective against current or future security threats. Any unauthorized or accidental access to, or disclosure, modification, misuse, or loss of, personal or other data could result in legal claims or proceedings, liability, significant regulatory penalties, and loss of trade secrets or other intellectual property. In addition, such an event could disrupt our operations, damage our reputation and delay development of our product candidates. 60 61 Risks Related to Our Operating Results, Financial Condition and Capital Requirements 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. We believe that our quarterly and annual results of operations may be affected by a variety of factors, including: • • • • • • • • • • • • • 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; the extent to which coverage and adequate reimbursement for our products is available from government and other third-party payors; 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 discount percentage resulting from price increases, 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; the timing, receipt and amount of development funding and milestone, royalty and other payments under collaboration and license arrangements, which may vary significantly from quarter to quarter; entry into new strategic transactions, such as collaborations, license agreements or acquisitions of products, technologies or businesses; 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 evolving effects of the COVID-19 pandemic, including those leading to past and potential future reductions in rates of cancer diagnoses; 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 clinical trials, research and development, pre-commercialization, manufacturing and other activities by us or our collaborators; and expenditures to develop and/or commercialize any additional products, product candidates, or technologies that we may develop, in-license, or acquire. Sales of a newly-approved product, or sales an existing product in a newly-approved indication or territory, are particularly difficult to predict. Sales results or trends for such products, indications or territories in any period may not necessarily be indicative of future performance. Changes in our operations, such as new or expanding pipeline programs, the continued expansion or our international operations, additional business activities, or entry into strategic transactions, including potential future acquisitions of products, technologies or businesses, may cause significant fluctuations in our expenses. In addition, stock-based compensation expense may vary significantly from period to period. The variables we use for valuing these awards, including our underlying stock price, change over time. Additionally, from time to time, we have implemented long-term incentive plans for eligible employees, and the incentives provided under these plans are contingent upon the achievement of certain regulatory milestones. Costs of performance-based compensation under these plans are not recorded as an expense until the achievement of the applicable milestones is deemed probable, which may result in large fluctuations to the expense we must recognize in any particular period. For these and other reasons, it is difficult for us to accurately forecast future sales of our current or any future approved products, collaboration and license agreement revenues, royalty revenues, operating expenses or future profits or losses. In addition, although we provide financial guidance from time to time, such guidance is based on assumptions that may be incorrect or that may change from quarter to quarter. You also should not rely on operating results in any period as being indicative of future performance. Our operating results have on occasion been, and in in future periods may also be, below prior period results, our own guidance and/or the expectations of securities analysts or investors. Such results 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 sustained profitability for some time, if at all. We have incurred substantial net losses in each of our years of operation, other than the year ended December 31, 2020. 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. In addition, we expect to make substantial expenditures to commercialize our products and potentially commercialize our product candidates. For example, in connection with our recent in-license of development and commercialization rights to disitamab vedotin, we have incurred and expect to continue to incur substantial expenses, including to further develop and potentially commercialize disitamab vedotin. We may also pursue new operations or continue the expansion of our existing operations, including with respect to the continued development of our commercial infrastructure in Europe and our plans to otherwise continue to expand our operations internationally. Accordingly, we expect to continue to incur net losses in the future and may not achieve sustained profitability 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. 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, support our development and commercialization activities, invest in our facilities, and expand globally, which may require us to raise additional capital. In addition, we may pursue new operations or continue the expansion of our existing operations, including with respect to the continued development of our commercial infrastructure in Europe and our plans to otherwise continue to expand our operations internationally. Our commitment of resources to the continuing development, regulatory and commercialization activities for our products, the continued research, development and manufacturing of our product candidates, our pursuit of regulatory approvals for and preparing to potentially launch and commercialize our product candidates, and the anticipated expansion of our pipeline and operations may require us to raise additional capital. Further, we actively evaluate various strategic transactions on an ongoing basis, including licensing or otherwise acquiring complementary products, technologies or businesses, and we may require significant additional capital in order to complete or otherwise provide funding for such transactions. We may seek additional capital through some or all of the following methods: corporate collaborations, licensing arrangements and public or private debt or equity financings. We do not know whether additional capital will be available when needed, or that, if available, we will obtain financing on terms favorable to us or our stockholders. If we are unable to raise additional funds when we need them, we may be required to scale back our operations, delay, reduce the scope of, or eliminate development programs enter into collaboration or license agreements on terms that are not favorable to us, sell or relinquish rights to certain assets, proprietary technologies or product candidates or forego strategic opportunities. Our future capital requirements will depend upon a number of factors, including: the level of sales of our products and any future approved products; the time and costs involved in pursuing regulatory approvals and the timing of any approvals; the costs, timing, progress and results of our research and development, including preclinical testing and clinical the timing, receipt and amount of royalty revenue generated from commercial sales by our collaborators and licensees, as well as development funding, milestone payments and other payments under collaboration and license arrangements; • • • • trials; 62 63 Risks Related to Our Operating Results, Financial Condition and Capital Requirements 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. We believe that our quarterly and annual results of operations may be affected by a variety of factors, including: • • • • • • • • • • • • • 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; the extent to which coverage and adequate reimbursement for our products is available from government and other third-party payors; 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 discount percentage resulting from price increases, 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; the timing, receipt and amount of development funding and milestone, royalty and other payments under collaboration and license arrangements, which may vary significantly from quarter to quarter; entry into new strategic transactions, such as collaborations, license agreements or acquisitions of products, technologies or businesses; agreements or write-offs of inventory; changes in our cost of sales due to potential new product launches, royalties owed under technology license the incidence rate of new patients in the approved indications for our products; the evolving effects of the COVID-19 pandemic, including those leading to past and potential future reductions in rates of cancer diagnoses; 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 clinical trials, research and development, pre-commercialization, manufacturing and other activities by us or our collaborators; and expenditures to develop and/or commercialize any additional products, product candidates, or technologies that we may develop, in-license, or acquire. Sales of a newly-approved product, or sales an existing product in a newly-approved indication or territory, are particularly difficult to predict. Sales results or trends for such products, indications or territories in any period may not necessarily be indicative of future performance. Changes in our operations, such as new or expanding pipeline programs, the continued expansion or our international operations, additional business activities, or entry into strategic transactions, including potential future acquisitions of products, technologies or businesses, may cause significant fluctuations in our expenses. In addition, stock-based compensation expense may vary significantly from period to period. The variables we use for valuing these awards, including our underlying stock price, change over time. Additionally, from time to time, we have implemented long-term incentive plans for eligible employees, and the incentives provided under these plans are contingent upon the achievement of certain regulatory milestones. Costs of performance-based compensation under these plans are not recorded as an expense until the achievement of the applicable milestones is deemed probable, which may result in large fluctuations to the expense we must recognize in any particular period. For these and other reasons, it is difficult for us to accurately forecast future sales of our current or any future approved products, collaboration and license agreement revenues, royalty revenues, operating expenses or future profits or losses. In addition, although we provide financial guidance from time to time, such guidance is based on assumptions that may be incorrect or that may change from quarter to quarter. You also should not rely on operating results in any period as being indicative of future performance. Our operating results have on occasion been, and in in future periods may also be, below prior period results, our own guidance and/or the expectations of securities analysts or investors. Such results 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 sustained profitability for some time, if at all. We have incurred substantial net losses in each of our years of operation, other than the year ended December 31, 2020. 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. In addition, we expect to make substantial expenditures to commercialize our products and potentially commercialize our product candidates. For example, in connection with our recent in-license of development and commercialization rights to disitamab vedotin, we have incurred and expect to continue to incur substantial expenses, including to further develop and potentially commercialize disitamab vedotin. We may also pursue new operations or continue the expansion of our existing operations, including with respect to the continued development of our commercial infrastructure in Europe and our plans to otherwise continue to expand our operations internationally. Accordingly, we expect to continue to incur net losses in the future and may not achieve sustained profitability 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. 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, support our development and commercialization activities, invest in our facilities, and expand globally, which may require us to raise additional capital. In addition, we may pursue new operations or continue the expansion of our existing operations, including with respect to the continued development of our commercial infrastructure in Europe and our plans to otherwise continue to expand our operations internationally. Our commitment of resources to the continuing development, regulatory and commercialization activities for our products, the continued research, development and manufacturing of our product candidates, our pursuit of regulatory approvals for and preparing to potentially launch and commercialize our product candidates, and the anticipated expansion of our pipeline and operations may require us to raise additional capital. Further, we actively evaluate various strategic transactions on an ongoing basis, including licensing or otherwise acquiring complementary products, technologies or businesses, and we may require significant additional capital in order to complete or otherwise provide funding for such transactions. We may seek additional capital through some or all of the following methods: corporate collaborations, licensing arrangements and public or private debt or equity financings. We do not know whether additional capital will be available when needed, or that, if available, we will obtain financing on terms favorable to us or our stockholders. If we are unable to raise additional funds when we need them, we may be required to scale back our operations, delay, reduce the scope of, or eliminate development programs enter into collaboration or license agreements on terms that are not favorable to us, sell or relinquish rights to certain assets, proprietary technologies or product candidates or forego strategic opportunities. Our future capital requirements will depend upon a number of factors, including: • • • • the level of sales of our products and any future approved products; the time and costs involved in pursuing regulatory approvals and the timing of any approvals; the costs, timing, progress and results of our research and development, including preclinical testing and clinical trials; the timing, receipt and amount of royalty revenue generated from commercial sales by our collaborators and licensees, as well as development funding, milestone payments and other payments under collaboration and license arrangements; 62 63 • • • • • • • • • • • • • • • announcements regarding, or negative publicity concerning, adverse events or safety concerns associated with the use of our products or 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, or establishment of new collaborations or licensing arrangements; our failure to achieve the perceived benefits of our strategic transactions, including our recent in-license of development and commercialization rights to disitamab vedotin, as rapidly or to the extent anticipated by financial analysts or investors; or technologies; our entry into additional material strategic transactions including licensing or acquisition of products, businesses regulatory actions with respect to our products, product candidates, clinical trials or regulatory filings; our raising of additional capital and the terms upon which we may raise any additional capital; developments or disputes concerning our proprietary rights, including with respect to our disputes with Daiichi Sankyo; developments regarding any litigation or potential litigation; the evolving effects of the COVID-19 pandemic; share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; changes in laws, regulations or government policies, including with respect to pricing and reimbursement; • market conditions for equity investments in general, or the biotechnology or pharmaceutical industries in particular; and other economic, social or political conditions. 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. In the past, companies whose securities have experienced periods of volatility in market price have been subjected to securities class action or derivative litigation. In this regard, we have been, and may in the future again become, subject to claims and litigation alleging violations of the securities laws or other related claims. 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. • • • • • • • 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; clinical trial results; the extent of our investment in development, manufacturing and commercialization outside the U.S.; our collaborators or our competitors; announcements regarding the results of discovery efforts, product development and commercial activities by us, the costs associated with past and potential future strategic transactions, including acquisitions or licenses of additional technologies, products or businesses as well as licenses we may need to commercialize our current or any future approved products; the terms and timing of any future collaboration, licensing and other arrangements; expenses associated with current or future 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. Debt financing arrangements may require us to pledge certain assets or enter into covenants that could restrict our operations or our ability to pay dividends or other distributions on our common stock or incur further indebtedness. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. During the past several years, domestic and international financial markets have experienced, and they may continue to experience, extreme disruption from time to time, including, among other things, high volatility, significant declines in stock prices and severely diminished liquidity and credit availability for both borrowers and investors. Such adverse capital and credit market conditions could make it more difficult to obtain additional capital on favorable terms, or at all, which could have a material adverse effect on our business and growth prospects. For example, our ability to raise additional capital may be adversely impacted by deteriorating global economic conditions and the disruptions to and volatility in the credit and financial markets in the U.S. and worldwide resulting from the evolving effects of the COVID-19 pandemic. The potential future impairment of intangible assets and goodwill may negatively affect our results of operations and financial position. As of December 31, 2021, we carried $535.3 million of intangible assets, net and goodwill on our condensed consolidated balance sheet. Our intangible assets 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 intangible assets 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 been, and is likely to continue to be, volatile. 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: • • the levels of product sales; regulatory approval or non-approval of our products or product candidates, specific label indications for or restrictions, warnings or limitations in their use, or delays in the regulatory review process; 64 65 • • • • • • • • • 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 past and potential future strategic transactions, including acquisitions or licenses of additional technologies, products or businesses as well as licenses we may need to commercialize our current or any future approved products; the terms and timing of any future collaboration, licensing and other arrangements; expenses associated with current or future 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. Debt financing arrangements may require us to pledge certain assets or enter into covenants that could restrict our operations or our ability to pay dividends or other distributions on our common stock or incur further indebtedness. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. During the past several years, domestic and international financial markets have experienced, and they may continue to experience, extreme disruption from time to time, including, among other things, high volatility, significant declines in stock prices and severely diminished liquidity and credit availability for both borrowers and investors. Such adverse capital and credit market conditions could make it more difficult to obtain additional capital on favorable terms, or at all, which could have a material adverse effect on our business and growth prospects. For example, our ability to raise additional capital may be adversely impacted by deteriorating global economic conditions and the disruptions to and volatility in the credit and financial markets in the U.S. and worldwide resulting from the evolving effects of the COVID-19 pandemic. operations and financial position. The potential future impairment of intangible assets and goodwill may negatively affect our results of As of December 31, 2021, we carried $535.3 million of intangible assets, net and goodwill on our condensed consolidated balance sheet. Our intangible assets 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 intangible assets 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 been, and is likely to continue to be, volatile. 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: the levels of product sales; regulatory approval or non-approval of our products or product candidates, specific label indications for or restrictions, warnings or limitations in their use, or delays in the regulatory review process; • • • • • • • • • • • • • • clinical trial results; announcements regarding the results of discovery efforts, product development and commercial activities by us, our collaborators or our competitors; announcements regarding, or negative publicity concerning, adverse events or safety concerns associated with the use of our products or 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, or establishment of new collaborations or licensing arrangements; our failure to achieve the perceived benefits of our strategic transactions, including our recent in-license of development and commercialization rights to disitamab vedotin, 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; regulatory actions with respect to our products, product candidates, clinical trials or regulatory filings; our raising of additional capital and the terms upon which we may raise any additional capital; developments or disputes concerning our proprietary rights, including with respect to our disputes with Daiichi Sankyo; developments regarding any litigation or potential litigation; the evolving effects of the COVID-19 pandemic; share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; changes in laws, regulations or government policies, including with respect to pricing and reimbursement; • market conditions for equity investments in general, or the biotechnology or pharmaceutical industries in particular; and • other economic, social or political conditions. 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. In the past, companies whose securities have experienced periods of volatility in market price have been subjected to securities class action or derivative litigation. In this regard, we have been, and may in the future again become, subject to claims and litigation alleging violations of the securities laws or other related claims. 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. 64 65 Substantial future sales or issuances of shares of our common stock or equity-related securities could cause the Our disclosures related to environmental, social and governance, or ESG, matters expose us to various risks, market price of our common stock to decline. including risks to our reputation and stock price. Sales of a substantial number of shares of our common stock, and sales by members of our management or board of directors or entities affiliated with such members, could occur at any time. In addition, in December 2020, pursuant to a ten-year registration rights agreement we entered into with certain entities affiliated with Baker Bros. Advisors LP, or the Baker Entities, we registered up to 47,366,602 shares of our common stock for resale by the Baker Entities, and we may be required to register the resale of additional shares held by the Baker Entities from time to time in the future. Sales by our management, our directors, their affiliates, or significant shareholders like the Baker Entities, 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, perhaps substantially, and could impair our ability to raise capital through the sale of additional equity or equity-related securities. 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. These issuances could be substantially dilutive and could adversely affect the market price of our common stock. Likewise, future issuances 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. Our existing stockholders have significant control of our management and affairs. Based on information available to us as of December 31, 2021, the Baker Entities collectively beneficially owned approximately 26% of our common stock. In addition, 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, 2021, our executive officers and directors and holders of greater than five percent of our outstanding common stock beneficially owned approximately 51% of our voting power as of December 31, 2021. As a result, these stockholders are able to exert substantial influence over 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 result in our taking corporate actions that other stockholders may not consider to be in their best interest. For example, it 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 terms of those shares, including voting rights, without any further action by the stockholders. 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 Seagen. 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 Seagen, 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 laws in Delaware and Washington related to corporate takeovers may prevent or delay a change of control of Seagen. Investors are increasingly likely to factor ESG disclosures into their investment decisions. We have elevated the degree to which we manage, track and report on our ESG efforts and goals. Where provided, goal statements are aspirational, are subject to a number of risks, many of which are beyond our control, and are not guarantees. Our processes and operations may not always conform to various frameworks for identifying, measuring and reporting ESG metrics, and ESG reporting standards may change over time, either of which could result in significant revisions to reported metrics. In addition, our interpretation of reporting standards may differ from those of others. Any failure or perceived failure to pursue or fulfill our goals or to satisfy various reporting standards could have negative impacts on our reputation and stock price and expose us to litigation or government actions. General Risk Factors financial condition or growth prospects. Changes in tax laws or regulations may have a material adverse effect on our business, results of operations, Due to economic and political conditions, new tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, the current U.S. presidential administration has proposed numerous corporate tax reform proposals including implementation of a minimum tax on book income and increasing taxation of international business operations. In addition, as we continue to expand our operations internationally, we may become increasingly subject to taxation in jurisdictions outside the U.S. Changes in corporate tax rates or in rules applicable to the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings or the deductibility of expenses could have a material impact on the value of our deferred tax assets, result in significant one-time charges, increase our future tax expense or otherwise have a material adverse effect on our business, results of operations, financial condition or growth prospects. If our facilities are damaged or our research and development, manufacturing 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 these facilities due to fire, natural disaster, severe weather, power loss, communications failure, unauthorized entry or other events could cause significant disruption and/or delays in our research and development, manufacturing and commercial activities and could cause us to incur large expenses to repair or replace the facilities. 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 disruption, delays and costs. 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. As a result we may be required to make changes in our accounting policies that could adversely affect our reported revenues and expenses, future profitability or financial position. 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. 66 67 Substantial future sales or issuances of shares of our common stock or equity-related securities could cause the Our disclosures related to environmental, social and governance, or ESG, matters expose us to various risks, market price of our common stock to decline. including risks to our reputation and stock price. Sales of a substantial number of shares of our common stock, and sales by members of our management or board of directors or entities affiliated with such members, could occur at any time. In addition, in December 2020, pursuant to a ten-year registration rights agreement we entered into with certain entities affiliated with Baker Bros. Advisors LP, or the Baker Entities, we registered up to 47,366,602 shares of our common stock for resale by the Baker Entities, and we may be required to register the resale of additional shares held by the Baker Entities from time to time in the future. Sales by our management, our directors, their affiliates, or significant shareholders like the Baker Entities, 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, perhaps substantially, and could impair our ability to raise capital through the sale of additional equity or equity-related securities. 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. These issuances could be substantially dilutive and could adversely affect the market price of our common stock. Likewise, future issuances 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. Our existing stockholders have significant control of our management and affairs. Based on information available to us as of December 31, 2021, the Baker Entities collectively beneficially owned approximately 26% of our common stock. In addition, 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, 2021, our executive officers and directors and holders of greater than five percent of our outstanding common stock beneficially owned approximately 51% of our voting power as of December 31, 2021. As a result, these stockholders are able to exert substantial influence over 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 result in our taking corporate actions that other stockholders may not consider to be in their best interest. For example, it 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 terms of those shares, including voting rights, without any further action by the stockholders. 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 Seagen. 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 Seagen, 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 laws in Delaware and Washington related to corporate takeovers may prevent or delay a change of control of Seagen. Investors are increasingly likely to factor ESG disclosures into their investment decisions. We have elevated the degree to which we manage, track and report on our ESG efforts and goals. Where provided, goal statements are aspirational, are subject to a number of risks, many of which are beyond our control, and are not guarantees. Our processes and operations may not always conform to various frameworks for identifying, measuring and reporting ESG metrics, and ESG reporting standards may change over time, either of which could result in significant revisions to reported metrics. In addition, our interpretation of reporting standards may differ from those of others. Any failure or perceived failure to pursue or fulfill our goals or to satisfy various reporting standards could have negative impacts on our reputation and stock price and expose us to litigation or government actions. General Risk Factors Changes in tax laws or regulations may have a material adverse effect on our business, results of operations, financial condition or growth prospects. Due to economic and political conditions, new tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, the current U.S. presidential administration has proposed numerous corporate tax reform proposals including implementation of a minimum tax on book income and increasing taxation of international business operations. In addition, as we continue to expand our operations internationally, we may become increasingly subject to taxation in jurisdictions outside the U.S. Changes in corporate tax rates or in rules applicable to the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings or the deductibility of expenses could have a material impact on the value of our deferred tax assets, result in significant one-time charges, increase our future tax expense or otherwise have a material adverse effect on our business, results of operations, financial condition or growth prospects. If our facilities are damaged or our research and development, manufacturing 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 these facilities due to fire, natural disaster, severe weather, power loss, communications failure, unauthorized entry or other events could cause significant disruption and/or delays in our research and development, manufacturing and commercial activities and could cause us to incur large expenses to repair or replace the facilities. 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 disruption, delays and costs. 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. As a result we may be required to make changes in our accounting policies that could adversely affect our reported revenues and expenses, future profitability or financial position. 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. 66 67 Item 1B. Unresolved Staff Comments None. Item 2. Properties Our headquarters are in Bothell, Washington. Our Bothell campus comprises 11 leased buildings of office and warehouse space that we use for laboratory, discovery, research and development and general and administrative purposes, and a biologics manufacturing facility which we own. We have signed a lease to a facility currently being constructed in Everett, Washington, which will be used for future manufacturing capability. We also have leased space in Seattle, Washington, South San Francisco, California, Mississauga, Canada, Zug, Switzerland, and in several other European locations used for general and administrative purposes. All of our significant leases include renewal options. We believe that our real estate is currently adequate to meet our needs. As we continue to expand our operations, we may need to lease or purchase additional real estate. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity PART II Securities Our Common Stock record. Dividend Policy Our common stock is traded on the Nasdaq Global Select Market under the symbol “SGEN.” As of February 4, 2022, there were 183,626,064 shares of our common stock outstanding, which were held by approximately 54 holders of 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 Item 3. Legal Proceedings There were no unregistered sales of equity securities by us during 2021. In addition, we did not repurchase any of The information set forth in Note 13 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. our equity securities during 2021. Stock Performance Graph Item 4. Mine Safety Disclosures Not applicable. The table below shows the cumulative total return to our stockholders during the period from December 31, 2016 through December 31, 2021 in comparison to the indicated indexes. The results assume that $100 was invested on December 31, 2016 in our common stock and each of the indicated indexes, including reinvestment of any dividends. $350 $300 $250 $200 $150 $100 $50 12/2016 12/2017 12/2018 12/2019 12/2020 12/2021 Seagen Inc. Nasdaq Composite Nasdaq Biotechnology Seagen Inc. Nasdaq Composite Nasdaq Biotechnology 2016 2017 2018 2019 2020 2021 $ 100.00 $ 101.38 $ 107.37 $ 216.52 $ 331.89 $ 100.00 100.00 129.64 121.63 125.96 110.85 172.17 138.69 249.51 175.33 292.97 304.85 175.37 December 31, 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 Seagen 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. 68 69 Item 1B. Unresolved Staff Comments None. Item 2. Properties Our headquarters are in Bothell, Washington. Our Bothell campus comprises 11 leased buildings of office and warehouse space that we use for laboratory, discovery, research and development and general and administrative purposes, and a biologics manufacturing facility which we own. We have signed a lease to a facility currently being constructed in Everett, Washington, which will be used for future manufacturing capability. We also have leased space in Seattle, Washington, South San Francisco, California, Mississauga, Canada, Zug, Switzerland, and in several other European locations used for general and administrative purposes. All of our significant leases include renewal options. We believe that our real estate is currently adequate to meet our needs. As we continue to expand our operations, we may need to lease or purchase additional real estate. Item 3. Legal Proceedings Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PART II Our Common Stock Our common stock is traded on the Nasdaq Global Select Market under the symbol “SGEN.” As of February 4, 2022, there were 183,626,064 shares of our common stock outstanding, which were held by approximately 54 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 2021. In addition, we did not repurchase any of The information set forth in Note 13 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. our equity securities during 2021. Stock Performance Graph Item 4. Mine Safety Disclosures Not applicable. The table below shows the cumulative total return to our stockholders during the period from December 31, 2016 through December 31, 2021 in comparison to the indicated indexes. The results assume that $100 was invested on December 31, 2016 in our common stock and each of the indicated indexes, including reinvestment of any dividends. $350 $300 $250 $200 $150 $100 $50 12/2016 12/2017 12/2018 12/2019 12/2020 12/2021 Seagen Inc. Nasdaq Composite Nasdaq Biotechnology 2016 2017 2018 2019 2020 2021 Seagen Inc. Nasdaq Composite Nasdaq Biotechnology $ 100.00 $ 100.00 100.00 101.38 $ 129.64 121.63 107.37 $ 125.96 110.85 216.52 $ 172.17 138.69 331.89 $ 249.51 175.33 292.97 304.85 175.37 December 31, 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 Seagen 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. 68 69 Item 6. [Reserved] Expanded indication approved in the European Union and first approval in China for our partner Takeda. 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 our consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. Overview Seagen is a biotechnology company that develops and commercializes targeted therapies to treat cancer. We are commercializing ADCETRIS for the treatment of certain CD30-expressing lymphomas, PADCEV for the treatment of certain metastatic urothelial cancers, TUKYSA for the treatment of certain metastatic HER2-positive breast cancers, and TIVDAK for the treatment of certain metastatic cervical cancers. We are also advancing a pipeline of novel therapies for solid tumors and blood-related cancers designed to address unmet medical needs and improve treatment outcomes for patients. Many of our programs, including ADCETRIS, PADCEV and TIVDAK, are based on our antibody-drug conjugate, or ADC, technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells. 2021 highlights and recent developments Corporate • • • Achieved 38% growth in net product sales for full year 2021 compared to full year 2020. Entered into an exclusive license agreement with RemeGen, Co. Ltd., or RemeGen, to develop and commercialize disitamab vedotin, a novel HER2-targeted ADC. Continued to make strategic investments in our pipeline, commercial launches, infrastructure, and headcount to support our future growth. ADCETRIS • • • Announced in February 2022 that the phase 3 ECHELON-1 clinical trial demonstrated a statistically significant improvement in OS (p=0.009) in patients with advanced Hodgkin lymphoma following treatment with ADCETRIS in combination with chemotherapy. With approximately six years median follow up, patients receiving ADCETRIS plus doxorubicin, vinblastine, and dacarbazine (A+AVD) in the frontline setting had a 41 percent reduction in the risk of death (HR 0.59; [95% CI: 0.396 to 0.879]) compared with patients receiving doxorubicin, bleomycin, vinblastine, and dacarbazine (ABVD). The safety profile of ADCETRIS was consistent with previous studies and no new safety events were observed. Published five-year updates of the phase 3 ECHELON-1 and ECHELON-2 trials in frontline advanced lymphoma and PTCL respectively. Expanded clinical program including initiation of phase 3 trial in relapsed and refractory diffuse large B-cell lymphoma and expanded a trial in frontline Hodgkin lymphoma to evaluate stage I and II patients. 70 71 U.S. Food and Drug Administration, or FDA: converted PADCEV's accelerated approval to regular approval; and approved a new indication for PADCEV in the treatment of patients with locally advanced or metastatic urothelial cancer who are ineligible for cisplatin-containing chemotherapy and have previously received one or more prior lines of therapy. Received approval for PADCEV from Japan's Ministry of Health, Labour and Welfare, or MHLW, for the treatment of patients with radically unresectable urothelial cancer that has progressed after anti-cancer chemotherapy in September 2021. Completed enrollment in Cohort K of the EV-103 clinical trial of PADCEV in combination with Merck's pembrolizumab as first-line treatment for metastatic urothelial cancer in October 2021. The trial could potentially support registration under the FDA's accelerated approval pathway if the results are positive. Enrolled first patient in a phase 1 EV-104 clinical trial evaluating dosing of PADCEV administered intravesically in patients with Bacillus Calmette-Guerin, or BCG, unresponsive non-muscle invasive bladder Received approval in the European Union, Canada and Great Britain for previously treated metastatic HER2- positive breast cancer. Completed enrollment in the phase 2 MOUNTAINEER clinical trial of TUKYSA in combination with trastuzumab and as a single agent in patients with HER2-positive metastatic colorectal cancer following previous treatment with first- and second-line standard-of-care therapies. The trial could potentially support registration under the FDA's accelerated approval pathway. Received accelerated approval by the FDA for the treatment of adult patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy. We began the commercial launch in Published results of the TIVDAK pivotal trial, innovaTV 204, in patients with previously treated recurrent or metastatic cervical cancer in The Lancet Oncology April 2021. The data were used to support accelerated PADCEV ◦ ◦ cancer. TUKYSA • • • • • • • • • • • September 2021. approval in the U.S. TIVDAK Pipeline cancer. Reported initial clinical data on SEA-BCMA in multiple myeloma and SEA-CD40 in metastatic pancreatic Initiated phase 1 trials of additional novel drug candidates. Also refer to Part I Item 1 “Business” for more information about our products, pipeline, technologies, research programs, and future plans for our clinical programs, including recent key business achievements. Item 6. [Reserved] • Expanded indication approved in the European Union and first approval in China for our partner Takeda. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations PADCEV 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 our consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. Overview Seagen is a biotechnology company that develops and commercializes targeted therapies to treat cancer. We are commercializing ADCETRIS for the treatment of certain CD30-expressing lymphomas, PADCEV for the treatment of certain metastatic urothelial cancers, TUKYSA for the treatment of certain metastatic HER2-positive breast cancers, and TIVDAK for the treatment of certain metastatic cervical cancers. We are also advancing a pipeline of novel therapies for solid tumors and blood-related cancers designed to address unmet medical needs and improve treatment outcomes for patients. Many of our programs, including ADCETRIS, PADCEV and TIVDAK, are based on our antibody-drug conjugate, or ADC, technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells. 2021 highlights and recent developments Corporate support our future growth. ADCETRIS • • • • • Achieved 38% growth in net product sales for full year 2021 compared to full year 2020. Entered into an exclusive license agreement with RemeGen, Co. Ltd., or RemeGen, to develop and commercialize disitamab vedotin, a novel HER2-targeted ADC. Continued to make strategic investments in our pipeline, commercial launches, infrastructure, and headcount to • Announced in February 2022 that the phase 3 ECHELON-1 clinical trial demonstrated a statistically significant improvement in OS (p=0.009) in patients with advanced Hodgkin lymphoma following treatment with ADCETRIS in combination with chemotherapy. With approximately six years median follow up, patients receiving ADCETRIS plus doxorubicin, vinblastine, and dacarbazine (A+AVD) in the frontline setting had a 41 percent reduction in the risk of death (HR 0.59; [95% CI: 0.396 to 0.879]) compared with patients receiving doxorubicin, bleomycin, vinblastine, and dacarbazine (ABVD). The safety profile of ADCETRIS was consistent with previous studies and no new safety events were observed. Published five-year updates of the phase 3 ECHELON-1 and ECHELON-2 trials in frontline advanced lymphoma and PTCL respectively. Expanded clinical program including initiation of phase 3 trial in relapsed and refractory diffuse large B-cell lymphoma and expanded a trial in frontline Hodgkin lymphoma to evaluate stage I and II patients. • U.S. Food and Drug Administration, or FDA: ◦ ◦ converted PADCEV's accelerated approval to regular approval; and approved a new indication for PADCEV in the treatment of patients with locally advanced or metastatic urothelial cancer who are ineligible for cisplatin-containing chemotherapy and have previously received one or more prior lines of therapy. • • • Received approval for PADCEV from Japan's Ministry of Health, Labour and Welfare, or MHLW, for the treatment of patients with radically unresectable urothelial cancer that has progressed after anti-cancer chemotherapy in September 2021. Completed enrollment in Cohort K of the EV-103 clinical trial of PADCEV in combination with Merck's pembrolizumab as first-line treatment for metastatic urothelial cancer in October 2021. The trial could potentially support registration under the FDA's accelerated approval pathway if the results are positive. Enrolled first patient in a phase 1 EV-104 clinical trial evaluating dosing of PADCEV administered intravesically in patients with Bacillus Calmette-Guerin, or BCG, unresponsive non-muscle invasive bladder cancer. TUKYSA • • Received approval in the European Union, Canada and Great Britain for previously treated metastatic HER2- positive breast cancer. Completed enrollment in the phase 2 MOUNTAINEER clinical trial of TUKYSA in combination with trastuzumab and as a single agent in patients with HER2-positive metastatic colorectal cancer following previous treatment with first- and second-line standard-of-care therapies. The trial could potentially support registration under the FDA's accelerated approval pathway. TIVDAK • • Received accelerated approval by the FDA for the treatment of adult patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy. We began the commercial launch in September 2021. Published results of the TIVDAK pivotal trial, innovaTV 204, in patients with previously treated recurrent or metastatic cervical cancer in The Lancet Oncology April 2021. The data were used to support accelerated approval in the U.S. Pipeline • • Reported initial clinical data on SEA-BCMA in multiple myeloma and SEA-CD40 in metastatic pancreatic cancer. Initiated phase 1 trials of additional novel drug candidates. Also refer to Part I Item 1 “Business” for more information about our products, pipeline, technologies, research programs, and future plans for our clinical programs, including recent key business achievements. 70 71 • impacts related to the COVID-19 pandemic, including potential further adverse effects on the rate of Hodgkin lymphoma diagnoses and potential adverse impacts on diagnosis rates for other cancers. As a result of these and other factors, our future net product sales for each of our products can be difficult to accurately predict from period to period. We cannot assure you that sales of any of our products will continue to grow or that we can maintain sales of any of our products at or near current levels. The biopharmaceutical industry and the markets in which we operate are intensely competitive. Many of our competitors are working to develop or have commercialized products similar to those we market or are developing. Drug prices are under significant scrutiny and we expect drug pricing and other healthcare costs to continue to be subject to intense political and societal pressures on a global basis. For example, in July 2021, the Biden administration announced an Executive Order that includes initiatives aimed at lowering prescription drug costs and implementing Canadian drug importation, and in response to President Biden’s Executive Order, in September 2021, the U.S. Department of Health and Human Services released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. 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 We expect that amounts received from our collaboration agreements, including royalties, will continue to be an important source of our revenues and cash flows. These revenues and cash flows will be impacted by future development funding and the achievement of development, clinical and commercial success by our collaborators under our existing collaboration and license agreements, as well as by entering into potential new collaboration and license agreements. Our ongoing research, development, manufacturing and commercial activities will require substantial amounts of capital and may not ultimately be successful. We expect that we will incur substantial expenses, and we will require significant financial resources and additional personnel in order to advance the development of, to pursue, obtain and maintain regulatory approvals for, and to commercialize our products and product candidates, and expand our pipeline. In addition, we may pursue new operations or continue the expansion of our existing operations, including with respect to the continued development of our commercial infrastructure in Europe and our plans to otherwise continue to expand our operations internationally. As a result, we may need to raise additional capital, and our operating expenses may fluctuate as a result of such activities. We may also incur substantial milestone payment obligations to certain of our licensors, including RemeGen, as our product candidates progress through clinical trials towards potential commercialization. Outlook We recognize product sales revenue from ADCETRIS in the U.S. and Canada, from PADCEV and TIVDAK in the U.S., and from TUKYSA in the U.S., Europe and Canada. We expect growth in net product sales in 2022 from 2021 to be primarily driven by sales growth of PADCEV and, to a lesser extent, TIVDAK, ADCETRIS and TUKYSA. While we anticipate that sales of ADCETRIS will increase modestly in 2022 as compared to 2021, we have experienced continued impacts associated with the COVID-19 pandemic, which appear to have led to a reduction in the rate of Hodgkin lymphoma diagnoses and may further adversely affect the rate of Hodgkin lymphoma diagnoses in the future. We have also experienced an increase in gross-to-net deductions for ADCETRIS since the beginning of the pandemic, which has been driven by the proportion of ADCETRIS sales subject to discounts through the federal 340B drug discount program, as well as increases in discount rates. We believe that the increase in gross-to-net deductions is, in part, due to a shift in the locations where ADCETRIS is administered. We may further experience additional increases in gross-to-net deductions for ADCETRIS and the rest of our portfolio in the future based on market and site-of-care dynamics. Subject to potentially securing additional labels, we anticipate that the rate of growth of PADCEV and TUKYSA sales will decelerate in 2022 compared to 2021 as we continue to more fully penetrate the markets for their currently approved labels within the U.S. Our ability to maintain or continue to grow net product sales and to realize the anticipated benefits of our doing business internationally. investments in our products depends on a number of factors including: • • • • • • • • • • • • • • our and our collaborators’ ability to demonstrate to the medical community the efficacy, safety and value of our products and their potential advantages compared to existing and future therapeutics in their approved indications; the extent to which we and our collaborators are able to obtain regulatory and other approvals of our products in additional territories and/or in additional indications, including any approvals for PADCEV in the frontline metastatic urothelial cancer setting and any approvals for TUKYSA in earlier lines of breast cancer and/or other HER2-positive cancers; our and our collaborators’ ability to successfully launch, market and commercialize our products in any new markets or new indications, if regulatory approval is obtained; competition from other therapies and changing market dynamics, as further described in "Business— Competition" in Part I of this Annual Report on Form 10-K; for example, the potential approval of Enhertu for second-line HER2-positive metastatic breast cancer could pose increased competition for TUKYSA; the extent to which we are able to successfully work with Astellas to jointly market and commercialize PADCEV in the U.S., and with Genmab to jointly market and commercialize TIVDAK in the U.S.; our ability to successfully market and commercialize TUKYSA in our territories outside the U.S.; the extent to which coverage and adequate levels of reimbursement for our products are available from governments and other third-party payors; the extent to which we and our collaborators are able to obtain required pricing and reimbursement approvals of our products in additional territories, most notably with respect to TUKYSA; the impact of current and future healthcare reform measures, including measures that could result in more rigorous coverage criteria or reduce the price that we receive for our products; the incidence flow of patients eligible for treatment in our products’ approved indications; our and our collaborators’ ability to accurately predict and supply product demand; duration of therapy for patients receiving our products; our and our collaborators' ability to successfully comply with rigorous post-marketing requirements, including requirements related to a confirmatory trial as a result of TIVDAK’s accelerated approval by the FDA, and to convert TIVDAK's accelerated approval to regular approval in the U.S.; the acceptance of TIVDAK and its required eye care by the medical community and patients; and 72 73 • impacts related to the COVID-19 pandemic, including potential further adverse effects on the rate of Hodgkin lymphoma diagnoses and potential adverse impacts on diagnosis rates for other cancers. As a result of these and other factors, our future net product sales for each of our products can be difficult to accurately predict from period to period. We cannot assure you that sales of any of our products will continue to grow or that we can maintain sales of any of our products at or near current levels. The biopharmaceutical industry and the markets in which we operate are intensely competitive. Many of our competitors are working to develop or have commercialized products similar to those we market or are developing. Drug prices are under significant scrutiny and we expect drug pricing and other healthcare costs to continue to be subject to intense political and societal pressures on a global basis. For example, in July 2021, the Biden administration announced an Executive Order that includes initiatives aimed at lowering prescription drug costs and implementing Canadian drug importation, and in response to President Biden’s Executive Order, in September 2021, the U.S. Department of Health and Human Services released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. In addition to pricing actions and other measures being taken worldwide designed to reduce healthcare costs and limit the overall level of government expenditures, our sales and operations could also be affected by other risks of doing business internationally. We expect that amounts received from our collaboration agreements, including royalties, will continue to be an important source of our revenues and cash flows. These revenues and cash flows will be impacted by future development funding and the achievement of development, clinical and commercial success by our collaborators under our existing collaboration and license agreements, as well as by entering into potential new collaboration and license agreements. Our ongoing research, development, manufacturing and commercial activities will require substantial amounts of capital and may not ultimately be successful. We expect that we will incur substantial expenses, and we will require significant financial resources and additional personnel in order to advance the development of, to pursue, obtain and maintain regulatory approvals for, and to commercialize our products and product candidates, and expand our pipeline. In addition, we may pursue new operations or continue the expansion of our existing operations, including with respect to the continued development of our commercial infrastructure in Europe and our plans to otherwise continue to expand our operations internationally. As a result, we may need to raise additional capital, and our operating expenses may fluctuate as a result of such activities. We may also incur substantial milestone payment obligations to certain of our licensors, including RemeGen, as our product candidates progress through clinical trials towards potential commercialization. Outlook We recognize product sales revenue from ADCETRIS in the U.S. and Canada, from PADCEV and TIVDAK in the U.S., and from TUKYSA in the U.S., Europe and Canada. We expect growth in net product sales in 2022 from 2021 to be primarily driven by sales growth of PADCEV and, to a lesser extent, TIVDAK, ADCETRIS and TUKYSA. While we anticipate that sales of ADCETRIS will increase modestly in 2022 as compared to 2021, we have experienced continued impacts associated with the COVID-19 pandemic, which appear to have led to a reduction in the rate of Hodgkin lymphoma diagnoses and may further adversely affect the rate of Hodgkin lymphoma diagnoses in the future. We have also experienced an increase in gross-to-net deductions for ADCETRIS since the beginning of the pandemic, which has been driven by the proportion of ADCETRIS sales subject to discounts through the federal 340B drug discount program, as well as increases in discount rates. We believe that the increase in gross-to-net deductions is, in part, due to a shift in the locations where ADCETRIS is administered. We may further experience additional increases in gross-to-net deductions for ADCETRIS and the rest of our portfolio in the future based on market and site-of-care dynamics. Subject to potentially securing additional labels, we anticipate that the rate of growth of PADCEV and TUKYSA sales will decelerate in 2022 compared to 2021 as we continue to more fully penetrate the markets for their currently approved labels within the U.S. Our ability to maintain or continue to grow net product sales and to realize the anticipated benefits of our investments in our products depends on a number of factors including: our and our collaborators’ ability to demonstrate to the medical community the efficacy, safety and value of our products and their potential advantages compared to existing and future therapeutics in their approved indications; the extent to which we and our collaborators are able to obtain regulatory and other approvals of our products in additional territories and/or in additional indications, including any approvals for PADCEV in the frontline metastatic urothelial cancer setting and any approvals for TUKYSA in earlier lines of breast cancer and/or other HER2-positive cancers; our and our collaborators’ ability to successfully launch, market and commercialize our products in any new markets or new indications, if regulatory approval is obtained; competition from other therapies and changing market dynamics, as further described in "Business— Competition" in Part I of this Annual Report on Form 10-K; for example, the potential approval of Enhertu for second-line HER2-positive metastatic breast cancer could pose increased competition for TUKYSA; the extent to which we are able to successfully work with Astellas to jointly market and commercialize PADCEV in the U.S., and with Genmab to jointly market and commercialize TIVDAK in the U.S.; our ability to successfully market and commercialize TUKYSA in our territories outside the U.S.; the extent to which coverage and adequate levels of reimbursement for our products are available from governments and other third-party payors; the extent to which we and our collaborators are able to obtain required pricing and reimbursement approvals of our products in additional territories, most notably with respect to TUKYSA; the impact of current and future healthcare reform measures, including measures that could result in more rigorous coverage criteria or reduce the price that we receive for our products; the incidence flow of patients eligible for treatment in our products’ approved indications; our and our collaborators’ ability to accurately predict and supply product demand; duration of therapy for patients receiving our products; our and our collaborators' ability to successfully comply with rigorous post-marketing requirements, including requirements related to a confirmatory trial as a result of TIVDAK’s accelerated approval by the FDA, and to convert TIVDAK's accelerated approval to regular approval in the U.S.; the acceptance of TIVDAK and its required eye care by the medical community and patients; and • • • • • • • • • • • • • • 72 73 We are closely evaluating the impacts of the evolving effects of the COVID-19 pandemic on our ability and the ability of our collaborators to effectively market, sell and distribute our products and to develop our products and product candidates. Our field-based personnel are using a mix of in-person interactions and electronic communications, such as emails, phone calls and video conferences, to support healthcare providers and patients. Many healthcare professionals that we normally call on are working a greater proportion of their working schedule from home and are facing additional demands on their time during the ongoing COVID-19 pandemic. We are continuing to experience increased competition for virtual appointments with healthcare professionals and a significant reduction in the number of interactions our sales personnel are having with physicians. We expect the different quality of electronic interactions as compared with in- person interactions, as well as the reduced quantity of interactions during the COVID-19 pandemic, to reduce the effectiveness of our sales personnel, as well as those of our collaborators, which could negatively affect our product sales and those of our collaborators, as well as physician awareness of our products. In this regard, we believe that the need to conduct some of our activities virtually is negatively impacting our ability to connect with key customers, including those familiar with competitive products, and our ability to conduct payor engagements. We face a number of challenges that will limit our ability to fully resume in-person interactions for the foreseeable future, including increasing COVID-19 infection rates due to coronavirus mutations and/or low vaccination rates or otherwise, the need to navigate varying restrictions for entering healthcare facilities and the pandemic's impacts on employee childcare arrangements. In addition, the effects of the COVID-19 pandemic continue to evolve rapidly, and we may subsequently be forced to, or subsequently determine that we should, resume a more restrictive remote work model, whether as a result of further spikes or surges in COVID-19 infection or hospitalization rates or otherwise. Moreover, the long-term effects of the COVID-19 pandemic are also unknown and it is possible that following the pandemic, healthcare institutions could alter their policies with respect to in person visits by pharmaceutical company representatives. COVID-19 related restrictions could also present product distribution challenges as we utilize recently initiated distribution channels for TUKYSA. We also expect that the conversion of medical conferences to a virtual format may reduce our ability to effectively disseminate scientific information about our products, which may result in decreased physician awareness of our products, their approved indications and their efficacy and safety. The evolving effects of the COVID-19 pandemic appear to have negatively affected and may continue to negatively affect our product sales due to challenges in patient access to healthcare settings, significant increases in unemployment and the resulting loss of individual health insurance coverage, and inability to access government healthcare programs due to backlogs, some or all of which appear to have negatively affected diagnosis rates, may affect side effect management and course of treatment and may increase enrollment in our patient support programs. In this regard, impacts associated with the COVID-19 pandemic appear to have led to a reduction in the rate of Hodgkin lymphoma diagnoses, may have adversely affected diagnosis rates of other cancers, and may further adversely affect rates of cancer diagnoses in the future. Some of the sites participating in our clinical trials are affected by site closings, reduced capacity, staffing shortages, or other effects of the COVID-19 pandemic. At some sites, we are experiencing impacts to our ability to monitor patients, activate sites, screen and enroll patients, complete site monitoring and manage samples. The extent of the impact of these factors on a particular clinical trial depends on the current stage of activities at a given site, for example study start up versus post-enrollment, and the number of impacted sites participating in that trial. Impacts on diagnosis rates associated with the COVID-19 pandemic may also negatively impact enrollment. While we do not at this time anticipate the need to revise our publicly reported projected clinical milestone dates as a result of the effects of the COVID-19 pandemic, there may continue to be adverse impacts to our clinical study timelines, which, depending upon the duration and severity of the evolving effects of the COVID-19 pandemic, could ultimately delay data availability. In addition, many of our non-essential on-site research activities are currently significantly reduced as a result of the COVID-19 pandemic, which may negatively impact the number of IND candidates entering our clinical pipeline in future years. The extent to which the risks and evolving effects of the COVID-19 pandemic impact our business, our ability to generate sales of and revenues from our approved products, and our clinical development and regulatory efforts will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate duration and severity of the pandemic, government actions, such as travel restrictions, quarantines and social distancing requirements in the U.S. and in other countries, business closures or business disruptions and the effectiveness of actions taken in the U.S. and in other countries to contain and treat the disease, including the effectiveness and timing of vaccine programs in the U.S. and worldwide. For more information on the risks and uncertainties associated with the evolving effects of the COVID-19 pandemic on our business, our ability to generate sales of and revenues from our approved products, and our clinical development and regulatory efforts, see “Part II Item 1A—Risk Factors.” Because of the above and other factors, our results of operations may vary substantially from year to year and from quarter to quarter and, as a result, we believe that period to period comparisons of our operating results may not be meaningful and should not be relied upon as being indicative of our future performance. Financial summary For 2021, our net product sales increased by $385.0 million or 38% compared to 2020, due primarily to growth from TUKYSA and PADCEV. Royalty revenues increased $23.8 million or 19% compared to 2020, driven by higher sales of ADCETRIS by Takeda in its territories, as well as higher net sales from our other licensees. Total revenues decreased to $1.6 billion, compared to $2.2 billion in 2020, primarily impacted by $975.2 million collaboration and license agreement revenues recognized related to the agreements we entered into with Merck during 2020. For 2021, total costs and expenses increased to $2.3 billion, compared to $1.6 billion in 2020. Expenses in 2021 included a $200.0 million upfront payment related to the RemeGen exclusive licensing agreement as well as higher research and development expenses, higher cost of sales, and higher selling, general and administrative expenses. As of December 31, 2021, we had $2.2 billion in cash, cash equivalents and investments and $3.1 billion in total stockholders’ equity. In addition, the section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 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, 2020, filed with the SEC on February 12, 2021. Critical Accounting Policies and Estimates A summary of the significant accounting policies is provided in Note 1 to our Consolidated Financial Statements. 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 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. Management considers an accounting estimate to be critical if: • it requires a significant level of estimation uncertainty; and • changes in the estimate are reasonably likely to have a material effect on our financial condition or results of operations. We believe the following critical accounting policies and estimates describe the more significant judgments and estimates used in the preparation of our consolidated financial statements. Net Product Sales. We sell our products primarily through a limited number of specialty distributors and specialty pharmacies in the U.S., and to a lesser extent, internationally. The delivery of our products represents a single performance obligation for these transactions and we record net product sales when control is transferred to the customer, which generally occurs upon receipt by the customer. The transaction price for net 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, in particular, for government-mandated rebates and chargebacks, such as for the Medicaid and 340B programs. 74 75 We are closely evaluating the impacts of the evolving effects of the COVID-19 pandemic on our ability and the ability of our collaborators to effectively market, sell and distribute our products and to develop our products and product candidates. Our field-based personnel are using a mix of in-person interactions and electronic communications, such as emails, phone calls and video conferences, to support healthcare providers and patients. Many healthcare professionals that we normally call on are working a greater proportion of their working schedule from home and are facing additional demands on their time during the ongoing COVID-19 pandemic. We are continuing to experience increased competition for virtual appointments with healthcare professionals and a significant reduction in the number of interactions our sales personnel are having with physicians. We expect the different quality of electronic interactions as compared with in- person interactions, as well as the reduced quantity of interactions during the COVID-19 pandemic, to reduce the effectiveness of our sales personnel, as well as those of our collaborators, which could negatively affect our product sales and those of our collaborators, as well as physician awareness of our products. In this regard, we believe that the need to conduct some of our activities virtually is negatively impacting our ability to connect with key customers, including those familiar with competitive products, and our ability to conduct payor engagements. We face a number of challenges that will limit our ability to fully resume in-person interactions for the foreseeable future, including increasing COVID-19 infection rates due to coronavirus mutations and/or low vaccination rates or otherwise, the need to navigate varying restrictions for entering healthcare facilities and the pandemic's impacts on employee childcare arrangements. In addition, the effects of the COVID-19 pandemic continue to evolve rapidly, and we may subsequently be forced to, or subsequently determine that we should, resume a more restrictive remote work model, whether as a result of further spikes or surges in COVID-19 infection or hospitalization rates or otherwise. Moreover, the long-term effects of the COVID-19 pandemic are also unknown and it is possible that following the pandemic, healthcare institutions could alter their policies with respect to in person visits by pharmaceutical company representatives. COVID-19 related restrictions could also present product distribution challenges as we utilize recently initiated distribution channels for TUKYSA. We also expect that the conversion of medical conferences to a virtual format may reduce our ability to effectively disseminate scientific information about our products, which may result in decreased physician awareness of our products, their approved indications and their efficacy and safety. The evolving effects of the COVID-19 pandemic appear to have negatively affected and may continue to negatively affect our product sales due to challenges in patient access to healthcare settings, significant increases in unemployment and the resulting loss of individual health insurance coverage, and inability to access government healthcare programs due to backlogs, some or all of which appear to have negatively affected diagnosis rates, may affect side effect management and course of treatment and may increase enrollment in our patient support programs. In this regard, impacts associated with the COVID-19 pandemic appear to have led to a reduction in the rate of Hodgkin lymphoma diagnoses, may have adversely affected diagnosis rates of other cancers, and may further adversely affect rates of cancer diagnoses in the future. Some of the sites participating in our clinical trials are affected by site closings, reduced capacity, staffing shortages, or other effects of the COVID-19 pandemic. At some sites, we are experiencing impacts to our ability to monitor patients, activate sites, screen and enroll patients, complete site monitoring and manage samples. The extent of the impact of these factors on a particular clinical trial depends on the current stage of activities at a given site, for example study start up versus post-enrollment, and the number of impacted sites participating in that trial. Impacts on diagnosis rates associated with the COVID-19 pandemic may also negatively impact enrollment. While we do not at this time anticipate the need to revise our publicly reported projected clinical milestone dates as a result of the effects of the COVID-19 pandemic, there may continue to be adverse impacts to our clinical study timelines, which, depending upon the duration and severity of the evolving effects of the COVID-19 pandemic, could ultimately delay data availability. In addition, many of our non-essential on-site research activities are currently significantly reduced as a result of the COVID-19 pandemic, which may negatively impact the number of IND candidates entering our clinical pipeline in future years. The extent to which the risks and evolving effects of the COVID-19 pandemic impact our business, our ability to generate sales of and revenues from our approved products, and our clinical development and regulatory efforts will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate duration and severity of the pandemic, government actions, such as travel restrictions, quarantines and social distancing requirements in the U.S. and in other countries, business closures or business disruptions and the effectiveness of actions taken in the U.S. and in other countries to contain and treat the disease, including the effectiveness and timing of vaccine programs in the U.S. and worldwide. For more information on the risks and uncertainties associated with the evolving effects of the COVID-19 pandemic on our business, our ability to generate sales of and revenues from our approved products, and our clinical development and regulatory efforts, see “Part II Item 1A—Risk Factors.” Because of the above and other factors, our results of operations may vary substantially from year to year and from quarter to quarter and, as a result, we believe that period to period comparisons of our operating results may not be meaningful and should not be relied upon as being indicative of our future performance. Financial summary For 2021, our net product sales increased by $385.0 million or 38% compared to 2020, due primarily to growth from TUKYSA and PADCEV. Royalty revenues increased $23.8 million or 19% compared to 2020, driven by higher sales of ADCETRIS by Takeda in its territories, as well as higher net sales from our other licensees. Total revenues decreased to $1.6 billion, compared to $2.2 billion in 2020, primarily impacted by $975.2 million collaboration and license agreement revenues recognized related to the agreements we entered into with Merck during 2020. For 2021, total costs and expenses increased to $2.3 billion, compared to $1.6 billion in 2020. Expenses in 2021 included a $200.0 million upfront payment related to the RemeGen exclusive licensing agreement as well as higher research and development expenses, higher cost of sales, and higher selling, general and administrative expenses. As of December 31, 2021, we had $2.2 billion in cash, cash equivalents and investments and $3.1 billion in total stockholders’ equity. In addition, the section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 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, 2020, filed with the SEC on February 12, 2021. Critical Accounting Policies and Estimates A summary of the significant accounting policies is provided in Note 1 to our Consolidated Financial Statements. 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 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. Management considers an accounting estimate to be critical if: • it requires a significant level of estimation uncertainty; and • changes in the estimate are reasonably likely to have a material effect on our financial condition or results of operations. We believe the following critical accounting policies and estimates describe the more significant judgments and estimates used in the preparation of our consolidated financial statements. Net Product Sales. We sell our products primarily through a limited number of specialty distributors and specialty pharmacies in the U.S., and to a lesser extent, internationally. The delivery of our products represents a single performance obligation for these transactions and we record net product sales when control is transferred to the customer, which generally occurs upon receipt by the customer. The transaction price for net 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, in particular, for government-mandated rebates and chargebacks, such as for the Medicaid and 340B programs. 74 75 U.S. 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. We 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. Accrued Liabilities. As part of the process of preparing financial statements, we estimate accrued liabilities. This process involves identifying services that have been performed and the time period over which they will be 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. Long-term Incentive Plans, Performance-based and Market-based Restricted Stock Awards. We have long term incentive plans and have granted certain senior leadership other performance- and market-based restricted stock awards, which provide eligible employees with the opportunity to receive performance-based incentive compensation, which may be comprised of cash, and/or restricted stock units, or RSUs. The payment of cash and the grant or vesting of RSUs awards are contingent upon the achievement of pre-determined performance goals, which may include regulatory milestones, revenue targets, or total shareholder return compared to our industry peer group. We record compensation expense over the estimated service period for each performance goal when we believe the performance goal is considered probable, which we assess at each reporting date. Once a performance goal is considered probable, we record compensation expense based on the portion of the service period elapsed to date with respect to that performance goal, with a cumulative catch-up, net of estimated forfeitures, and recognize any remaining compensation expense, if any, over the remaining estimated service period. Assessing whether performance goals are probable to be achieved and estimating the timing upon which the goal may be achieved, each may involve a significant amount of uncertainty. Results of Operations - Years Ended December 31, 2021, 2020, and 2019 Net product sales (dollars in thousands) ADCETRIS PADCEV TUKYSA TIVDAK Net product sales $ 2021 705,561 $ 339,918 333,952 6,135 2020 658,577 $ 222,436 119,585 — $ 1,385,566 $ 1,000,598 $ 2019 627,733 244 — — 627,977 Percentage change 2021/2020 2020/2019 7 % 53 % 179 % NM 38 % 5 % NM NM NM 59 % NM: No amount in comparable period or not a meaningful comparison. Our net product sales grew 38% during 2021 as compared to 2020, primarily driven by volume growth of our recently commercialized products TUKYSA and PADCEV, and to a lesser extent, higher volumes of ADCETRIS vials sold. We began commercializing TIVDAK in the U.S. following FDA approval in September 2021. (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 year Balance, end of ADCETRIS net product sales increased in 2021 from 2020 primarily due to higher volumes. TUKYSA net sales grew $214.4 million or 179% in 2021 as compared to 2020, driven by continued penetration in its current FDA approved indication in addition to global expansion following approval in the European Union in February 2021. TUKYSA was launched in April 2020. PADCEV net product sales grew $117.5 million or 53% in 2021 as compared to 2020, driven by continued penetration in its initial FDA approved indication as well as by FDA approval in July 2021 for PADCEV's use in an additional indication, and to a lesser extent, higher sales of drug product for use in clinical trials for the 2021 periods. We expect growth in net product sales in 2022 from 2021 to be primarily driven by sales growth of PADCEV, and to a lesser extent, TIVDAK and ADCETRIS. Refer to “Overview—Outlook” above for additional information. Gross-to-net deductions, net of related payments and credits, were as follows: December 31, 2021 December 31, 2020 December 31, 2019 Distribution fees, product returns and other Distribution fees, product returns and other Rebates and chargebacks Total Rebates and chargebacks Total Rebates and chargebacks Total Distribution fees, product returns and other $ 44,193 $ 15,689 $ 59,882 $ 38,084 $ 7,519 $ 45,603 $ 26,968 $ 5,604 $ 32,572 492,527 40,491 533,018 358,238 28,724 386,962 253,702 15,298 269,000 (4,212) (1,220) (5,432) (1,341) — (1,341) (392) (464) (856) (428,045) (32,087) (460,132) (319,444) (18,886) (338,330) (217,905) (11,349) (229,254) (29,574) (6,055) (35,629) (31,344) (1,668) (33,012) (24,289) (1,570) (25,859) $ 74,889 $ 16,818 $ 91,707 $ 44,193 $ 15,689 $ 59,882 $ 38,084 $ 7,519 $ 45,603 Government-mandated rebates and chargebacks are the most significant component of our total gross-to-net deductions and the discount percentage has been increasing year-over-year. These discount percentages increased during 2021 and 2020 as a result of price increases that we instituted that exceeded the rate of inflation. The most significant portion of our gross-to-net accrual balances as of December 31, 2021 and 2020 was for ADCETRIS Medicaid rebates. For 2021, the provision related to current year sales and payments/credits for current year sales increased as compared to 2020, due to higher gross product sales. For 2021, payments/credits for prior year sales were consistent with 2020. We expect future gross-to-net deductions to fluctuate based on the volume of purchases eligible for government mandated discounts and rebates, as well as changes in the discount percentage which is impacted by potential future price increases, the rate of inflation, and other factors. We expect gross-to-net deductions to increase in 2022 as compared to 2021, driven by anticipated growth in our gross product sales. Royalty revenues Royalty revenues primarily reflect royalties earned under the ADCETRIS collaboration with Takeda. These royalties include commercial sales-based milestones and sales royalties. Sales royalties are based on a percentage of Takeda’s net sales of ADCETRIS, with rates that range from the mid-teens to the mid-twenties based on annual net sales tiers. Takeda bears third-party royalty costs owed on its sales of ADCETRIS. This amount is included in royalty revenues. Royalty revenues also reflect, to a lesser extent, amounts from Genentech earned on net sales of Polivy beginning in 2019, and amounts from GlaxoSmithKline earned on net sales of Blenrep beginning in 2020, both of which products utilize technology that we have licensed to them, as well as royalty revenues from Merck's TUKYSA net product sales and RemeGen's net product sales of disitamab vedotin. 76 77 U.S. 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. We 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. Accrued Liabilities. As part of the process of preparing financial statements, we estimate accrued liabilities. This process involves identifying services that have been performed and the time period over which they will be 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. Long-term Incentive Plans, Performance-based and Market-based Restricted Stock Awards. We have long term incentive plans and have granted certain senior leadership other performance- and market-based restricted stock awards, which provide eligible employees with the opportunity to receive performance-based incentive compensation, which may be comprised of cash, and/or restricted stock units, or RSUs. The payment of cash and the grant or vesting of RSUs awards are contingent upon the achievement of pre-determined performance goals, which may include regulatory milestones, revenue targets, or total shareholder return compared to our industry peer group. We record compensation expense over the estimated service period for each performance goal when we believe the performance goal is considered probable, which we assess at each reporting date. Once a performance goal is considered probable, we record compensation expense based on the portion of the service period elapsed to date with respect to that performance goal, with a cumulative catch-up, net of estimated forfeitures, and recognize any remaining compensation expense, if any, over the remaining estimated service period. Assessing whether performance goals are probable to be achieved and estimating the timing upon which the goal may be achieved, each may involve a significant amount of uncertainty. Results of Operations - Years Ended December 31, 2021, 2020, and 2019 Net product sales (dollars in thousands) ADCETRIS PADCEV TUKYSA TIVDAK 2021 2020 2019 2021/2020 2020/2019 $ 705,561 $ 658,577 $ 627,733 339,918 333,952 6,135 222,436 119,585 — 244 — — Percentage change 7 % 53 % 179 % NM 38 % 5 % NM NM NM 59 % Net product sales $ 1,385,566 $ 1,000,598 $ 627,977 NM: No amount in comparable period or not a meaningful comparison. Our net product sales grew 38% during 2021 as compared to 2020, primarily driven by volume growth of our recently commercialized products TUKYSA and PADCEV, and to a lesser extent, higher volumes of ADCETRIS vials sold. We began commercializing TIVDAK in the U.S. following FDA approval in September 2021. ADCETRIS net product sales increased in 2021 from 2020 primarily due to higher volumes. TUKYSA net sales grew $214.4 million or 179% in 2021 as compared to 2020, driven by continued penetration in its current FDA approved indication in addition to global expansion following approval in the European Union in February 2021. TUKYSA was launched in April 2020. PADCEV net product sales grew $117.5 million or 53% in 2021 as compared to 2020, driven by continued penetration in its initial FDA approved indication as well as by FDA approval in July 2021 for PADCEV's use in an additional indication, and to a lesser extent, higher sales of drug product for use in clinical trials for the 2021 periods. We expect growth in net product sales in 2022 from 2021 to be primarily driven by sales growth of PADCEV, and to a lesser extent, TIVDAK and ADCETRIS. Refer to “Overview—Outlook” above for additional information. Gross-to-net deductions, net of related payments and credits, were as follows: December 31, 2021 December 31, 2020 December 31, 2019 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 $ 44,193 $ 15,689 $ 59,882 $ 38,084 $ 7,519 $ 45,603 $ 26,968 $ 5,604 $ 32,572 492,527 40,491 533,018 358,238 28,724 386,962 253,702 15,298 269,000 (4,212) (1,220) (5,432) (1,341) — (1,341) (392) (464) (856) (428,045) (32,087) (460,132) (319,444) (18,886) (338,330) (217,905) (11,349) (229,254) (29,574) (6,055) (35,629) (31,344) (1,668) (33,012) (24,289) (1,570) (25,859) $ 74,889 $ 16,818 $ 91,707 $ 44,193 $ 15,689 $ 59,882 $ 38,084 $ 7,519 $ 45,603 (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 year-over-year. These discount percentages increased during 2021 and 2020 as a result of price increases that we instituted that exceeded the rate of inflation. The most significant portion of our gross-to-net accrual balances as of December 31, 2021 and 2020 was for ADCETRIS Medicaid rebates. For 2021, the provision related to current year sales and payments/credits for current year sales increased as compared to 2020, due to higher gross product sales. For 2021, payments/credits for prior year sales were consistent with 2020. We expect future gross-to-net deductions to fluctuate based on the volume of purchases eligible for government mandated discounts and rebates, as well as changes in the discount percentage which is impacted by potential future price increases, the rate of inflation, and other factors. We expect gross-to-net deductions to increase in 2022 as compared to 2021, driven by anticipated growth in our gross product sales. Royalty revenues Royalty revenues primarily reflect royalties earned under the ADCETRIS collaboration with Takeda. These royalties include commercial sales-based milestones and sales royalties. Sales royalties are based on a percentage of Takeda’s net sales of ADCETRIS, with rates that range from the mid-teens to the mid-twenties based on annual net sales tiers. Takeda bears third-party royalty costs owed on its sales of ADCETRIS. This amount is included in royalty revenues. Royalty revenues also reflect, to a lesser extent, amounts from Genentech earned on net sales of Polivy beginning in 2019, and amounts from GlaxoSmithKline earned on net sales of Blenrep beginning in 2020, both of which products utilize technology that we have licensed to them, as well as royalty revenues from Merck's TUKYSA net product sales and RemeGen's net product sales of disitamab vedotin. 76 77 (dollars in thousands) Royalty revenues 2021 150,523 $ 2020 126,756 $ 2019 138,491 $ Percentage change 2021/2020 2020/2019 19 % (8) % Royalty revenues increased in 2021 as compared to 2020, primarily due to growth in Takeda net sales of ADCETRIS in its territories, as well as higher royalties earned on net sales of Polivy, Blenrep, and by our other licensees. We expect that royalty revenues will increase in 2022 as compared to 2021 primarily due to higher royalties from anticipated growth in ADCETRIS sales volume by Takeda, as well as anticipated growth of our other licensees' net product sales. Collaboration and license agreement revenues Collaboration and license agreement revenues reflect amounts earned under certain of our license and collaboration agreements. These revenues reflect license fees, payments received by us for technology access and maintenance fees, sales of drug supply to our collaborators, milestone payments, and reimbursement payments for research and development support that we provide to our collaborators. Collaboration and license agreement revenues by collaborator were as follows: (dollars in thousands) GlaxoSmithKline Takeda Merck Other Percentage change 2021 2020 2019 2021/2020 2020/2019 $ 11,000 $ 6,958 1,168 19,156 26,000 $ 32,107 975,150 14,925 12,200 108,175 — 29,870 (58) % (78) % (100) % 28 % 113 % (70) % NM (50) % Total collaboration and license agreement revenues $ 38,282 $ 1,048,182 $ 150,245 (96) % 598 % NM: No amount in comparable period or not a meaningful comparison. Collaboration revenues from GlaxoSmithKline decreased in 2021 as compared to 2020, primarily due to recognition of two regulatory milestones achieved by GlaxoSmithKline in the third quarter of 2020, offset in part by recognition of a regulatory milestone achieved in 2021. Collaboration revenues from Takeda decreased in 2021 as compared to 2020, primarily due to a decrease in ADCETRIS drug supply sold to Takeda. We supply ADCETRIS to Takeda based on Takeda's product supply needs, which fluctuates from period to period. Collaboration and license agreement revenues from Merck in 2020 included license revenues of $975.2 million related to the LV Agreement and the TUKYSA Agreement. Refer to Note 10 of the Notes to Consolidated Financial Statements included in Part II Item 8 for additional information. Other collaboration revenues increased in 2021 as compared to 2020 primarily due drug product supplied to a collaborator. We expect that collaboration and license agreements revenues will decline slightly in 2022 as compared to 2021. Our collaboration and license agreement revenues are impacted by the term and duration of those agreements and by progress-dependent milestones, annual maintenance fees, and reimbursement of materials and support services. Collaboration and license agreement revenues may vary substantially from year to year and quarter to quarter depending on the progress made by our collaborators with their product candidates, amount of drug supplied to our collaborators, the level of support we provide to our collaborators, specifically to Takeda under our ADCETRIS collaboration, the timing of milestones achieved and our ability to enter into potential additional collaboration and license agreements. We discuss the below arrangements in greater detail under the heading “Corporate Collaborations” in Part I Item 1 Collaboration and license agreements 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 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 equally co-funding all development and certain commercialization costs for PADCEV. In the U.S., we and Astellas jointly promote PADCEV. We record sales of PADCEV in the U.S. and are responsible for all U.S. distribution activities. The companies each bear the costs of their own sales organizations in the U.S., equally share certain other costs associated with commercializing PADCEV in the U.S., and equally share in any profits realized in the U.S. Gross profit share payments owed to Astellas in the U.S. under the joint commercialization agreement are recorded in cost of sales. Outside the U.S., we have commercialization rights in all countries in North and South America, and Astellas has commercialization rights in the rest of the world, including Europe, Asia, Australia and Africa. Astellas or its affiliates are responsible for overseeing the manufacturing supply chain for PADCEV for development and commercial use. However, we are responsible for packaging and labeling in countries in which we sell PADCEV. In addition, if the parties determine that a second source is required, we will be responsible for establishing such second source whether internally or through a third party. Merck TUKYSA collaboration In September 2020, we entered into the TUKYSA Agreement with Merck. We granted exclusive rights to commercialize TUKYSA in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe. Under the terms of the TUKYSA Agreement, Merck is responsible for marketing applications for approval in its territory, supported by the positive results from the HER2CLIMB clinical trial. We retained commercial rights in, and will record sales in, the U.S., Canada and Europe. Merck is also co-funding a portion of the TUKYSA global development plan, which encompasses several ongoing and planned trials across HER2-positive cancers. We will continue to lead ongoing TUKYSA global development operational execution. Merck will solely fund and conduct country-specific clinical trials necessary to support anticipated regulatory applications in its territories. We received an upfront cash payment from Merck of $125.0 million and also received $85.0 million in prepaid research and development funding to be applied to Merck’s global development cost sharing obligations. We are eligible to receive progress-dependent milestone payments of up to $65.0 million, and are entitled to receive tiered royalties on sales of TUKYSA by Merck that begin in the low twenty percent range and escalate based sales volume by Merck in its territory. We recognized license revenue of $125.0 million during the year ended December 31, 2020 associated with the TUKYSA Agreement, and we recognize such cost sharing proportionately with the performance of the underlying activities, while recording Merck’s reimbursement of our expenses as a reduction of research and development expenses. Sales of TUKYSA drug product supplied is included in collaboration and license agreement revenues. The prepayment received for global development cost-sharing was recorded as a co-development liability in accrued liabilities and other or other long-term liabilities on our consolidated balance sheet as of December 31, 2020. As joint development expenses are incurred, we recognize the portion of Merck’s prepayment as a reduction of our research and development expenses on our consolidated statements of comprehensive income (loss). As of December 31, 2021 and 2020, $55.3 million and $80.9 million was recorded as the remaining co-development liability, respectively. 78 79 (dollars in thousands) Royalty revenues 2021 2020 2019 2021/2020 2020/2019 $ 150,523 $ 126,756 $ 138,491 19 % (8) % Royalty revenues increased in 2021 as compared to 2020, primarily due to growth in Takeda net sales of ADCETRIS in its territories, as well as higher royalties earned on net sales of Polivy, Blenrep, and by our other We expect that royalty revenues will increase in 2022 as compared to 2021 primarily due to higher royalties from anticipated growth in ADCETRIS sales volume by Takeda, as well as anticipated growth of our other licensees' net licensees. product sales. Collaboration and license agreement revenues Collaboration and license agreement revenues reflect amounts earned under certain of our license and collaboration agreements. These revenues reflect license fees, payments received by us for technology access and maintenance fees, sales of drug supply to our collaborators, milestone payments, and reimbursement payments for research and development support that we provide to our collaborators. Collaboration and license agreement revenues by collaborator were as follows: (dollars in thousands) GlaxoSmithKline Takeda Merck Other Total collaboration and license agreement revenues NM: No amount in comparable period or not a meaningful comparison. Percentage change 2021 2020 2019 2021/2020 2020/2019 $ 11,000 $ 26,000 $ 12,200 6,958 1,168 19,156 32,107 975,150 14,925 108,175 — 29,870 (58) % (78) % (100) % 28 % 113 % (70) % NM (50) % $ 38,282 $ 1,048,182 $ 150,245 (96) % 598 % Collaboration revenues from GlaxoSmithKline decreased in 2021 as compared to 2020, primarily due to recognition of two regulatory milestones achieved by GlaxoSmithKline in the third quarter of 2020, offset in part by recognition of a regulatory milestone achieved in 2021. Collaboration revenues from Takeda decreased in 2021 as compared to 2020, primarily due to a decrease in ADCETRIS drug supply sold to Takeda. We supply ADCETRIS to Takeda based on Takeda's product supply needs, which fluctuates from period to period. Collaboration and license agreement revenues from Merck in 2020 included license revenues of $975.2 million related to the LV Agreement and the TUKYSA Agreement. Refer to Note 10 of the Notes to Consolidated Financial Statements included in Part II Item 8 for additional information. Other collaboration revenues increased in 2021 as compared to 2020 primarily due drug product supplied to a collaborator. We expect that collaboration and license agreements revenues will decline slightly in 2022 as compared to 2021. Our collaboration and license agreement revenues are impacted by the term and duration of those agreements and by progress-dependent milestones, annual maintenance fees, and reimbursement of materials and support services. Collaboration and license agreement revenues may vary substantially from year to year and quarter to quarter depending on the progress made by our collaborators with their product candidates, amount of drug supplied to our collaborators, the level of support we provide to our collaborators, specifically to Takeda under our ADCETRIS collaboration, the timing of milestones achieved and our ability to enter into potential additional collaboration and license agreements. Percentage change Collaboration and license 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 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 equally co-funding all development and certain commercialization costs for PADCEV. In the U.S., we and Astellas jointly promote PADCEV. We record sales of PADCEV in the U.S. and are responsible for all U.S. distribution activities. The companies each bear the costs of their own sales organizations in the U.S., equally share certain other costs associated with commercializing PADCEV in the U.S., and equally share in any profits realized in the U.S. Gross profit share payments owed to Astellas in the U.S. under the joint commercialization agreement are recorded in cost of sales. Outside the U.S., we have commercialization rights in all countries in North and South America, and Astellas has commercialization rights in the rest of the world, including Europe, Asia, Australia and Africa. Astellas or its affiliates are responsible for overseeing the manufacturing supply chain for PADCEV for development and commercial use. However, we are responsible for packaging and labeling in countries in which we sell PADCEV. In addition, if the parties determine that a second source is required, we will be responsible for establishing such second source whether internally or through a third party. Merck TUKYSA collaboration In September 2020, we entered into the TUKYSA Agreement with Merck. We granted exclusive rights to commercialize TUKYSA in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe. Under the terms of the TUKYSA Agreement, Merck is responsible for marketing applications for approval in its territory, supported by the positive results from the HER2CLIMB clinical trial. We retained commercial rights in, and will record sales in, the U.S., Canada and Europe. Merck is also co-funding a portion of the TUKYSA global development plan, which encompasses several ongoing and planned trials across HER2-positive cancers. We will continue to lead ongoing TUKYSA global development operational execution. Merck will solely fund and conduct country-specific clinical trials necessary to support anticipated regulatory applications in its territories. We received an upfront cash payment from Merck of $125.0 million and also received $85.0 million in prepaid research and development funding to be applied to Merck’s global development cost sharing obligations. We are eligible to receive progress-dependent milestone payments of up to $65.0 million, and are entitled to receive tiered royalties on sales of TUKYSA by Merck that begin in the low twenty percent range and escalate based sales volume by Merck in its territory. We recognized license revenue of $125.0 million during the year ended December 31, 2020 associated with the TUKYSA Agreement, and we recognize such cost sharing proportionately with the performance of the underlying activities, while recording Merck’s reimbursement of our expenses as a reduction of research and development expenses. Sales of TUKYSA drug product supplied is included in collaboration and license agreement revenues. The prepayment received for global development cost-sharing was recorded as a co-development liability in accrued liabilities and other or other long-term liabilities on our consolidated balance sheet as of December 31, 2020. As joint development expenses are incurred, we recognize the portion of Merck’s prepayment as a reduction of our research and development expenses on our consolidated statements of comprehensive income (loss). As of December 31, 2021 and 2020, $55.3 million and $80.9 million was recorded as the remaining co-development liability, respectively. 78 79 Genmab TIVDAK collaboration We have an agreement with Genmab to develop and commercialize ADCs targeting tissue factor, under which we previously exercised a co-development option for TIVDAK. Under this collaboration, we and Genmab are co-funding all development costs for TIVDAK. TIVDAK was approved by FDA in September 2021. In the U.S., following FDA approval in September 2021, we and Genmab co-promote TIVDAK. We record sales of TIVDAK in the U.S. and are responsible for leading U.S. distribution activities. The companies will each maintain 50% of the sales representatives and medical science liaisons, equally share those and certain other costs associated with commercializing TIVDAK in the U.S., individually bear the costs of certain other personnel in the U.S., and equally share in any profits realized in the U.S. Gross profit share payments owed to Genmab in the U.S. under the joint commercialization agreement are recorded in cost of sales. Outside the U.S., we have commercialization rights in the rest of the world except for Japan, where Genmab has commercialization rights. In Europe, China, and Japan, we and Genmab equally share 50% of the costs associated with commercializing TIVDAK as well as any profits realized in these markets. In markets outside the U.S. other than Europe, China, and Japan, aside from certain costs specified in the agreement, we are solely responsible for all costs associated with commercializing TIVDAK and will pay Genmab a royalty based on a percentage of aggregate net sales ranging from the mid-teens to mid-twenties. RemeGen disitamab vedotin license agreement In September 2021, we and RemeGen entered into an exclusive worldwide licensing agreement to develop and commercialize disitamab vedotin, a novel HER2-targeted ADC. Disitamab vedotin combines the drug-linker technology originally developed by us with RemeGen’s novel HER2 antibody. Disitamab vedotin received FDA Breakthrough Therapy designation in 2020 for use in second-line treatment of patients with HER2-expressing, locally advanced or metastatic urothelial cancer who have previously received platinum-containing chemotherapy. Also in 2020, RemeGen announced FDA’s clearance of an IND application for a phase 2 clinical trial in locally advanced or metastatic urothelial cancer. Disitamab vedotin is conditionally approved for treating locally advanced metastatic gastric cancer in China, and in July 2021 the National Medical Products Administration of China also accepted a NDA for disitamab vedotin in locally advanced or metastatic urothelial cancer. Under the terms of the agreement, we made a $200.0 million upfront payment to obtain exclusive license rights to disitamab vedotin for global development and commercialization, outside of RemeGen’s territory. RemeGen retains development and commercialization rights for Asia, excluding Japan and Singapore. We will lead global development and RemeGen will fund and operationalize the portion of global clinical trials attributable to its territory. RemeGen will also be responsible for all clinical development and regulatory submissions specific to its territory. We will pay RemeGen up to $195.0 million in potential milestone payments across multiple indications and products based upon the achievement of specified development goals, and up to $2.2 billion in potential milestone payments based on the achievement of specified regulatory and commercialization goals. RemeGen will be entitled to a tiered, high single digit to mid-teen percentage royalty based on net sales of disitamab vedotin in our territory. Merck LV collaboration In September 2020, we entered into the LV Agreement with Merck. We are pursuing a broad joint development program evaluating LV as monotherapy and in combination setting, including with Merck’s anti-PD-1 therapy KEYTRUDA® (pembrolizumab) in triple-negative breast cancer, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumors. Under the terms of the LV Agreement, we granted Merck a co-exclusive worldwide development and commercialization license for LV, and agreed to jointly develop and commercialize LV on a worldwide basis. We received an upfront cash payment of $600.0 million, and we are eligible to receive up to $850.0 million in milestone payments upon the initiation of certain clinical trials and regulatory approval in certain major markets, and up to an additional $1.75 billion in milestone payments upon the achievement of specified annual global net sales thresholds of LV. Each company is responsible for 50% of global costs to develop and commercialize LV and will receive 50% of potential future profits. In connection with the LV Agreement, we entered into a stock purchase agreement with Merck in September 2020, pursuant to which we agreed to issue and sell, and Merck agreed to purchase 5,000,000 newly-issued shares of our common stock, at a purchase price of $200 per share, for an aggregate purchase price of $1.0 billion, referred to as the Purchase Agreement. We closed the Purchase Agreement in October 2020. We recognized license revenue of $850.1 million during the year ended December 31, 2020 associated with the LV Agreement and Purchase Agreement, and we recognize such cost sharing proportionately with the performance of the underlying activities, while recording Merck’s reimbursement of our expenses as a reduction of research and development expenses. Other technology collaboration and license agreements We have other collaboration and license agreements for our ADC technology with a number of biotechnology and pharmaceutical companies. We typically receive upfront cash payments and progress- and sales-dependent milestones for the achievement by our licensees of certain events, and annual maintenance fees and support fees for research and development services and materials provided under the agreements. These amounts are recognized as revenue over the performance obligation period if the license is determined not to be distinct from other goods and services provided, or, if there is no performance obligation, upon transfer of control of the goods or services to the customer. As of December 31, 2021, the remaining potential milestone payments to us under our other ADC license and collaboration agreements could total approximately $0.9 billion if all potential product candidates achieved all of their milestone events. Of this amount, approximately $0.4 billion relates to the achievement of development and regulatory milestones, and approximately $0.5 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. 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 ADC license and collaboration agreements. Cost of sales Cost of sales includes manufacturing and distribution costs of product sold, gross profit share with Astellas and Genmab pursuant to those respective collaborations, amortization of acquired technology license costs, royalties owed on our PADCEV net product sales, and royalties owed on global ADCETRIS, TUKYSA and TIVDAK net product sales. (dollars in thousands) Cost of sales 2021 2020 2019 2021/2020 2020/2019 $ 311,565 $ 217,720 $ 43,952 43 % 395 % Percentage change Cost of sales increased in 2021 as compared to 2020, driven by higher gross profit sharing owed to our collaborators related to certain net product sales, higher costs of drug product supply sold, and higher amortization expense associated with acquired TUKYSA technology costs, offset in part by a payment owed to a third-party technology licensor resulting from the TUKYSA Agreement in 2020. The gross profit share owed to collaborators totaled $162.0 million, $104.6 million, and $0 for the years ended December 31, 2021, 2020, and 2019, respectively. We recorded amortization expense of $23.1 million and $16.3 million for acquired TUKYSA technology costs during the years ended December 31, 2021 and 2020, respectively. We expect cost of sales to increase in 2022 as compared to 2021 as a result of the net product sales growth of our marketed products, contributing to higher anticipated gross profit sharing with our collaborations, higher manufacturing costs for goods sold, and increased royalties owed on certain net sales of our products. 80 81 Genmab TIVDAK collaboration We have an agreement with Genmab to develop and commercialize ADCs targeting tissue factor, under which we previously exercised a co-development option for TIVDAK. Under this collaboration, we and Genmab are co-funding all development costs for TIVDAK. TIVDAK was approved by FDA in September 2021. In the U.S., following FDA approval in September 2021, we and Genmab co-promote TIVDAK. We record sales of TIVDAK in the U.S. and are responsible for leading U.S. distribution activities. The companies will each maintain 50% of the sales representatives and medical science liaisons, equally share those and certain other costs associated with commercializing TIVDAK in the U.S., individually bear the costs of certain other personnel in the U.S., and equally share in any profits realized in the U.S. Gross profit share payments owed to Genmab in the U.S. under the joint commercialization agreement are recorded in cost of sales. Outside the U.S., we have commercialization rights in the rest of the world except for Japan, where Genmab has commercialization rights. In Europe, China, and Japan, we and Genmab equally share 50% of the costs associated with commercializing TIVDAK as well as any profits realized in these markets. In markets outside the U.S. other than Europe, China, and Japan, aside from certain costs specified in the agreement, we are solely responsible for all costs associated with commercializing TIVDAK and will pay Genmab a royalty based on a percentage of aggregate net sales ranging from the mid-teens to mid-twenties. RemeGen disitamab vedotin license agreement In September 2021, we and RemeGen entered into an exclusive worldwide licensing agreement to develop and commercialize disitamab vedotin, a novel HER2-targeted ADC. Disitamab vedotin combines the drug-linker technology originally developed by us with RemeGen’s novel HER2 antibody. Disitamab vedotin received FDA Breakthrough Therapy designation in 2020 for use in second-line treatment of patients with HER2-expressing, locally advanced or metastatic urothelial cancer who have previously received platinum-containing chemotherapy. Also in 2020, RemeGen announced FDA’s clearance of an IND application for a phase 2 clinical trial in locally advanced or metastatic urothelial cancer. Disitamab vedotin is conditionally approved for treating locally advanced metastatic gastric cancer in China, and in July 2021 the National Medical Products Administration of China also accepted a NDA for disitamab vedotin in locally advanced or metastatic urothelial cancer. Under the terms of the agreement, we made a $200.0 million upfront payment to obtain exclusive license rights to disitamab vedotin for global development and commercialization, outside of RemeGen’s territory. RemeGen retains development and commercialization rights for Asia, excluding Japan and Singapore. We will lead global development and RemeGen will fund and operationalize the portion of global clinical trials attributable to its territory. RemeGen will also be responsible for all clinical development and regulatory submissions specific to its territory. We will pay RemeGen up to $195.0 million in potential milestone payments across multiple indications and products based upon the achievement of specified development goals, and up to $2.2 billion in potential milestone payments based on the achievement of specified regulatory and commercialization goals. RemeGen will be entitled to a tiered, high single digit to mid-teen percentage royalty based on net sales of disitamab vedotin in our territory. Merck LV collaboration In September 2020, we entered into the LV Agreement with Merck. We are pursuing a broad joint development program evaluating LV as monotherapy and in combination setting, including with Merck’s anti-PD-1 therapy KEYTRUDA® (pembrolizumab) in triple-negative breast cancer, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumors. Under the terms of the LV Agreement, we granted Merck a co-exclusive worldwide development and commercialization license for LV, and agreed to jointly develop and commercialize LV on a worldwide basis. We received an upfront cash payment of $600.0 million, and we are eligible to receive up to $850.0 million in milestone payments upon the initiation of certain clinical trials and regulatory approval in certain major markets, and up to an additional $1.75 billion in milestone payments upon the achievement of specified annual global net sales thresholds of LV. Each company is responsible for 50% of global costs to develop and commercialize LV and will receive 50% of potential future profits. In connection with the LV Agreement, we entered into a stock purchase agreement with Merck in September 2020, pursuant to which we agreed to issue and sell, and Merck agreed to purchase 5,000,000 newly-issued shares of our common stock, at a purchase price of $200 per share, for an aggregate purchase price of $1.0 billion, referred to as the Purchase Agreement. We closed the Purchase Agreement in October 2020. We recognized license revenue of $850.1 million during the year ended December 31, 2020 associated with the LV Agreement and Purchase Agreement, and we recognize such cost sharing proportionately with the performance of the underlying activities, while recording Merck’s reimbursement of our expenses as a reduction of research and development expenses. Other technology collaboration and license agreements We have other collaboration and license agreements for our ADC technology with a number of biotechnology and pharmaceutical companies. We typically receive upfront cash payments and progress- and sales-dependent milestones for the achievement by our licensees of certain events, and annual maintenance fees and support fees for research and development services and materials provided under the agreements. These amounts are recognized as revenue over the performance obligation period if the license is determined not to be distinct from other goods and services provided, or, if there is no performance obligation, upon transfer of control of the goods or services to the customer. As of December 31, 2021, the remaining potential milestone payments to us under our other ADC license and collaboration agreements could total approximately $0.9 billion if all potential product candidates achieved all of their milestone events. Of this amount, approximately $0.4 billion relates to the achievement of development and regulatory milestones, and approximately $0.5 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. 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 ADC license and collaboration agreements. Cost of sales Cost of sales includes manufacturing and distribution costs of product sold, gross profit share with Astellas and Genmab pursuant to those respective collaborations, amortization of acquired technology license costs, royalties owed on our PADCEV net product sales, and royalties owed on global ADCETRIS, TUKYSA and TIVDAK net product sales. (dollars in thousands) Cost of sales 2021 311,565 $ 2020 217,720 $ $ 2019 2021/2020 2020/2019 43,952 43 % 395 % Percentage change Cost of sales increased in 2021 as compared to 2020, driven by higher gross profit sharing owed to our collaborators related to certain net product sales, higher costs of drug product supply sold, and higher amortization expense associated with acquired TUKYSA technology costs, offset in part by a payment owed to a third-party technology licensor resulting from the TUKYSA Agreement in 2020. The gross profit share owed to collaborators totaled $162.0 million, $104.6 million, and $0 for the years ended December 31, 2021, 2020, and 2019, respectively. We recorded amortization expense of $23.1 million and $16.3 million for acquired TUKYSA technology costs during the years ended December 31, 2021 and 2020, respectively. We expect cost of sales to increase in 2022 as compared to 2021 as a result of the net product sales growth of our marketed products, contributing to higher anticipated gross profit sharing with our collaborations, higher manufacturing costs for goods sold, and increased royalties owed on certain net sales of our products. 80 81 Research and development (dollars in thousands) Research and clinical development Process sciences and manufacturing 2021 950,309 $ 2020 581,496 $ $ 278,363 245,633 2019 497,986 221,388 Total research and development $ 1,228,672 $ 827,129 $ 719,374 Percentage change 2021/2020 2020/2019 63 % 13 % 49 % 17 % 11 % 15 % 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 2021 as compared to 2020 primarily reflected the $200.0 million RemeGen upfront license payment made in 2021, as well as higher employee- related costs and external development costs mainly to support our early- and late-stage pipeline of product candidates. Process sciences and manufacturing expenses include personnel and occupancy expenses, manufacturing costs for the scale-up and pre-approval manufacturing of product candidates used in research and our clinical trials, and costs for drug product supplied to our collaborators. Process sciences and manufacturing expenses also include quality control and assurance activities, and storage and shipment of our product candidates. The increase in 2021 compared to 2020 primarily reflected the timing of our manufacturing of product candidates for use in clinical trials, as well as increased manufacturing of our approved products. We utilize our employee and infrastructure resources across multiple research and development projects. We track human resource efforts expended on many of our programs for purposes of billing our collaborators for time incurred at agreed upon rates and for resource planning. We do not account for actual costs on a project basis as it relates to our infrastructure, facility, employee and other indirect costs; however, we do separately track significant third-party costs including clinical trial costs, manufacturing costs and other contracted service costs on a project basis. To that end, the following table shows third-party costs incurred for research, contract manufacturing of our product candidates and clinical and regulatory services, as well as development milestone payments for in-licensed technology for our products and certain of our clinical-stage product candidates. The table also presents upfront technology costs, other costs and overhead consisting of third-party costs for our preclinical stage programs, personnel, facilities, manufacturing, and other indirect costs not directly charged to development programs, as well as cost reimbursements received from or payments made to collaborators related to our product candidates. 2021 2020 2019 2021/2020 2020/2019 Percentage change (dollars in thousands) TUKYSA (tucatinib) PADCEV (enfortumab vedotin-ejfv) ADCETRIS (brentuximab vedotin) TIVDAK (tisotumab vedotin) Ladiratuzumab vedotin Other clinical stage programs Total third-party costs for clinical stage programs Upfront technology costs Other costs, overhead, and net cost-sharing with collaborators $ 153,546 $ 81,292 $ 79,564 77,539 45,712 21,975 62,985 441,321 200,000 38,031 75,589 15,573 19,715 48,727 278,927 5,000 84,277 24,954 59,705 9,813 22,776 11,828 213,353 15,000 Total research and development 587,351 543,202 491,021 $ 1,228,672 $ 827,129 $ 719,374 NM: No amount in comparable period or not a meaningful comparison. 89 % 109 % 3 % 194 % 11 % 29 % 58 % NM 8 % 49 % (4) % 52 % 27 % 59 % (13) % 312 % 31 % (67) % 11 % 15 % Third-party costs for TUKYSA, PADCEV, TIVDAK, and ladiratuzumab vedotin increased in 2021 as compared to 2020, primarily due to higher clinical trial costs. Third-party costs for ADCETRIS were consistent in 2021 as compared to 2020. 82 83 Third-party costs for other clinical stage programs increased in 2021 as compared to 2020 due to higher clinical trial costs and an in-license development milestone payment made in 2021 related to one of our clinical pipeline programs. license payment made in 2021. Upfront technology costs increased in 2021 as compared to 2020 due to the $200.0 million RemeGen upfront Other costs, overhead, and net cost-sharing with collaborators increased slightly in 2021 as compared to 2020 due to addition of new preclinical programs and higher employee-related expenses from headcount growth. During the years ended December 31, 2021, 2020, and 2019 net research and development cost-sharing reimbursements from and payments made to collaborators were $83.8 million, $(2.2) million, and $(47.0) million, respectively. In order to advance our product candidates toward commercialization, the product candidates are tested in numerous preclinical safety, toxicology and efficacy studies. We then conduct clinical trials for those product candidates that take several years or more to complete. The length of time varies substantially based upon the type, complexity, novelty and intended use of a product candidate. We will also need to conduct additional clinical trials in order to expand labeled indications of use for our commercial products. The outcome of our clinical trials is uncertain. The cost of clinical trials may vary significantly as a result of a variety of factors, including the number of patients enrolled, patient site costs, quantity and source of drug supply required, safety and efficacy of the product candidate, and extent of regulatory efforts, among others. We anticipate that our total research and development expenses in 2022 will increase compared to 2021 primarily due to higher costs for the continued development of our approved products and product candidates, offset partly by the $200.0 million RemeGen upfront license payment in 2021. 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. Selling, general and administrative (dollars in thousands) 2021 2020 2019 2021/2020 2020/2019 Selling, general and administrative $ 716,190 $ 533,835 $ 373,932 34 % 43 % Percentage change Selling, general and administrative expenses increased in 2021 compared to 2020, primarily reflecting higher commercial costs to support our 38% net product sales growth, including commercial investments made to support the European TUKYSA launches and the U.S. launch of TIVDAK. Our general and administrative expenses also increased in 2021 compared to 2020 due to 34% headcount growth as well as higher legal expenses. We anticipate that selling, general and administrative expenses will increase in 2022 as compared to 2021 as we continue our commercial activities in support of our product launches, and invest in infrastructure to support our continued growth in the U.S. and Europe. Investment and other income, net (dollars in thousands) Gain on equity securities Investment and other income, net Total investment and other income, net 2021 2020 2019 2021/2020 2020/2019 $ $ 4,744 $ 11,604 $ 50,124 1,607 7,245 11,771 6,351 $ 18,849 $ 61,895 (59) (78) % (66) (77) % (38) % (70) % Percentage change Research and development (dollars in thousands) 2021 2020 2019 2021/2020 2020/2019 Research and clinical development Process sciences and manufacturing $ 950,309 $ 581,496 $ 497,986 278,363 245,633 221,388 Total research and development $ 1,228,672 $ 827,129 $ 719,374 63 % 13 % 49 % 17 % 11 % 15 % Percentage change 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 2021 as compared to 2020 primarily reflected the $200.0 million RemeGen upfront license payment made in 2021, as well as higher employee- related costs and external development costs mainly to support our early- and late-stage pipeline of product candidates. Process sciences and manufacturing expenses include personnel and occupancy expenses, manufacturing costs for the scale-up and pre-approval manufacturing of product candidates used in research and our clinical trials, and costs for drug product supplied to our collaborators. Process sciences and manufacturing expenses also include quality control and assurance activities, and storage and shipment of our product candidates. The increase in 2021 compared to 2020 primarily reflected the timing of our manufacturing of product candidates for use in clinical trials, as well as increased manufacturing of our approved products. We utilize our employee and infrastructure resources across multiple research and development projects. We track human resource efforts expended on many of our programs for purposes of billing our collaborators for time incurred at agreed upon rates and for resource planning. We do not account for actual costs on a project basis as it relates to our infrastructure, facility, employee and other indirect costs; however, we do separately track significant third-party costs including clinical trial costs, manufacturing costs and other contracted service costs on a project basis. To that end, the following table shows third-party costs incurred for research, contract manufacturing of our product candidates and clinical and regulatory services, as well as development milestone payments for in-licensed technology for our products and certain of our clinical-stage product candidates. The table also presents upfront technology costs, other costs and overhead consisting of third-party costs for our preclinical stage programs, personnel, facilities, manufacturing, and other indirect costs not directly charged to development programs, as well as cost reimbursements received from or payments made to collaborators related to our product candidates. (dollars in thousands) TUKYSA (tucatinib) PADCEV (enfortumab vedotin-ejfv) ADCETRIS (brentuximab vedotin) TIVDAK (tisotumab vedotin) Ladiratuzumab vedotin Other clinical stage programs Total third-party costs for clinical stage programs Upfront technology costs Other costs, overhead, and net cost-sharing with collaborators Total research and development NM: No amount in comparable period or not a meaningful comparison. 2021 2020 2019 2021/2020 2020/2019 $ 153,546 $ 81,292 $ Percentage change 79,564 77,539 45,712 21,975 62,985 441,321 200,000 38,031 75,589 15,573 19,715 48,727 278,927 5,000 84,277 24,954 59,705 9,813 22,776 11,828 213,353 15,000 587,351 543,202 491,021 $ 1,228,672 $ 827,129 $ 719,374 89 % 109 % 3 % 194 % 11 % 29 % 58 % NM 8 % 49 % (4) % 52 % 27 % 59 % (13) % 312 % 31 % (67) % 11 % 15 % Third-party costs for TUKYSA, PADCEV, TIVDAK, and ladiratuzumab vedotin increased in 2021 as compared to 2020, primarily due to higher clinical trial costs. Third-party costs for ADCETRIS were consistent in 2021 as compared to 2020. Third-party costs for other clinical stage programs increased in 2021 as compared to 2020 due to higher clinical trial costs and an in-license development milestone payment made in 2021 related to one of our clinical pipeline programs. Upfront technology costs increased in 2021 as compared to 2020 due to the $200.0 million RemeGen upfront license payment made in 2021. Other costs, overhead, and net cost-sharing with collaborators increased slightly in 2021 as compared to 2020 due to addition of new preclinical programs and higher employee-related expenses from headcount growth. During the years ended December 31, 2021, 2020, and 2019 net research and development cost-sharing reimbursements from and payments made to collaborators were $83.8 million, $(2.2) million, and $(47.0) million, respectively. In order to advance our product candidates toward commercialization, the product candidates are tested in numerous preclinical safety, toxicology and efficacy studies. We then conduct clinical trials for those product candidates that take several years or more to complete. The length of time varies substantially based upon the type, complexity, novelty and intended use of a product candidate. We will also need to conduct additional clinical trials in order to expand labeled indications of use for our commercial products. The outcome of our clinical trials is uncertain. The cost of clinical trials may vary significantly as a result of a variety of factors, including the number of patients enrolled, patient site costs, quantity and source of drug supply required, safety and efficacy of the product candidate, and extent of regulatory efforts, among others. We anticipate that our total research and development expenses in 2022 will increase compared to 2021 primarily due to higher costs for the continued development of our approved products and product candidates, offset partly by the $200.0 million RemeGen upfront license payment in 2021. 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. Selling, general and administrative (dollars in thousands) Selling, general and administrative 2021 716,190 $ 2020 533,835 $ 2019 373,932 $ Percentage change 2021/2020 2020/2019 34 % 43 % Selling, general and administrative expenses increased in 2021 compared to 2020, primarily reflecting higher commercial costs to support our 38% net product sales growth, including commercial investments made to support the European TUKYSA launches and the U.S. launch of TIVDAK. Our general and administrative expenses also increased in 2021 compared to 2020 due to 34% headcount growth as well as higher legal expenses. We anticipate that selling, general and administrative expenses will increase in 2022 as compared to 2021 as we continue our commercial activities in support of our product launches, and invest in infrastructure to support our continued growth in the U.S. and Europe. Investment and other income, net (dollars in thousands) 2021 2020 2019 2021/2020 2020/2019 Gain on equity securities Investment and other income, net Total investment and other income, net $ $ 4,744 $ 11,604 $ 50,124 1,607 7,245 11,771 6,351 $ 18,849 $ 61,895 (59) (78) % (66) (77) % (38) % (70) % Percentage change 82 83 Investment and other income, net includes other non-operating income and loss, such as unrealized holding gains and losses on equity securities, realized gains and losses on equity and debt securities, and amounts earned on our investments in U.S. Treasury securities. At our currently planned spending rates, we believe that our existing financial resources, together with product and royalty revenues, and reimbursements and profit sharing we expect to receive under our existing collaboration and license agreements, will be sufficient to fund our operations for at least the next twelve months from the date of this Investment and other income decreased for the year ended December 31, 2021 as compared to 2020, due to lower average yields experienced within our investment portfolio during 2021, as well as lower gains on equity securities. filing. Income taxes We recorded a benefit from income taxes of $1.2 million for the year ended December 31, 2021 compared with a provision for income taxes of $2.0 million for the year ended December 31, 2020. The benefit from income taxes in 2021 reflected the generation of additional available state research and development tax credits. The provision for income taxes in 2020 primarily related to state income generated as a result of the license agreements with Merck entered into in 2020. We utilized net operating loss carryforwards to offset the federal tax liability in 2020. Liquidity and capital resources (dollars in thousands) Cash, cash equivalents and investments Working capital Stockholders’ equity (dollars in thousands) Cash provided by (used in): Operating activities Investing activities Financing activities December 31, 2021 2020 $ 2,160,036 $ 2,660,250 $ 2,300,340 3,065,139 2,674,246 3,488,100 2019 868,338 917,284 1,876,287 Years ended December 31, 2021 2020 2019 $ (499,007) $ 856,568 $ (163,737) 288,884 (1,419,012) (277,729) 77,779 846,108 637,842 The change in net cash from operating activities from 2021 as compared to 2020 was primarily related to the change in our net income (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 2021 as compared to 2020 reflected differences between the proceeds received from sale and maturity of our investments and amounts reinvested, and the difference for purchases of property, plant, and equipment. The change in net cash from financing activities in 2021 as compared to 2020 was driven by the proceeds from issuances of common stock in 2020, as well as lower proceeds from the exercise of stock options and employee stock purchase plan. We primarily have financed our operations through the issuance of our common stock, collections from commercial sales of our products, amounts received pursuant to license and collaboration agreements, and royalty revenues. To a lesser degree, we also have financed our operations through investment income. These financing and revenue sources have allowed us to maintain adequate levels of cash and investments. Our cash, cash equivalents, and investments are held in a variety of non-interest bearing bank accounts and interest-bearing instruments subject to investment guidelines allowing for holdings in U.S. government and agency securities, corporate securities, taxable municipal bonds, commercial paper and money market accounts. Our investment portfolio is structured to provide for investment maturities and access to cash to fund our anticipated working capital needs. However, if our liquidity needs should be accelerated for any reason in the near term, or investments do not pay at maturity, we may be required to sell investment securities in our portfolio prior to their scheduled maturities, which may result in a loss. As of December 31, 2021, we had $2.2 billion held in cash, cash equivalents, and investments. 84 85 We expect to make additional capital outlays and to increase operating expenditures over the next several years as we hire additional employees, and support our development, commercialization, invest in our facilities, and expand globally, which may require us to raise additional capital. Further, we actively evaluate various strategic transactions on an ongoing basis, including licensing or otherwise acquiring complementary products, technologies or businesses, and we may require significant additional capital in order to complete or otherwise provide funding for such transactions. We may seek additional capital through some or all of the following methods: corporate collaborations, licensing arrangements, and public or private debt or equity financings. We have no committed sources of funding and do not know whether additional capital will be available when needed, or that, if available, we will obtain financing on terms favorable to us or our stockholders. If we are unable to raise additional funds when we need them, our business and operations may be adversely affected. Material Cash Requirements Our material cash requirements in the short- and long-term consist of the following operational, capital, and manufacturing expenditures, a portion of which contain contractual or other obligations. We plan to fund our material cash requirements with our current financial resources together with our anticipated receipts of accounts receivable, product sales and royalty revenues, and reimbursements we expect to receive under our existing collaboration and license agreements. Operating expenditures. Our primary uses of cash and operating expenses relate to paying employees and consultants, administering clinical trials, marketing our products, and providing technology and facility infrastructure to support our operations. Our research and development expenses in 2021 were $1.2 billion, and we expect to increase our investment in research and development expenses in 2022. Our sales, general and administrative expenses were $716.2 million in 2021, and we expect to increase our sales, general, and administrative expenses to support our business growth in 2022. On a long-term basis, we manage future cash requirements relative to our long-term business plans. Operating costs also relate to our building leases for our office and laboratory facilities expiring in 2022 through 2029 that contain rate escalations and options for us to extend the leases. Our future minimum lease payments as of December 31, 2021 totaled $17.1 million related to short-term lease liabilities, and $64.9 million related to long-term lease liabilities. We signed a 20-year lease in June 2021 for a building complex in Everett, Washington that has not commenced as of December 31, 2021, and therefore rent payments are not included in lease liability balances as of December 31, 2021. Refer to Note 3 in the Notes to Financial Statements in Item 8 for further detail of our lease obligations. Capital expenditures. We make investments in our office, laboratory, and manufacturing facilities to enable continued expansion of our business. These include leasehold and building improvements at our approximately 1 million square feet of leased and owned properties, installation of laboratory and manufacturing equipment, computers, software, and office equipment. Our purchases for property and equipment for 2021 were $52.3 million, and we anticipate these investments to grow in 2022 to support our anticipated business growth and long-term facility needs, including a significant multi-year investment in a building complex being constructed in Everett, Washington, which is expected to provide us additional manufacturing, laboratory, and office space in the future. We expect our capital expenditures for this Everett facility to be approximately $350 million to $400 million over the next three years. Manufacturing costs, and supply agreements. Some of our inventory components and products require long lead times to manufacture. Therefore, we make substantial and often long-term investments in our supply chain in order to ensure we have enough drug product to meet current and future revenue forecasts, as well as clinical trial needs. Supply agreements primarily include non-cancelable obligations under our manufacturing, license and collaboration, and technology agreements. Further, a substantial portion of those non-cancelable obligations include minimum payments related to manufacturing our product candidates for use in our clinical trials and for commercial operations in the case of ADCETRIS. Future minimum contractual commitments under these arrangements December 31, 2021 totaled $204.3 million related to short-term obligations, and $191.7 million related to long-term obligations. Refer to Note 12 in the Notes to Financial Statements in Item 8 for further detail of our manufacturing supply agreements. Investment and other income, net includes other non-operating income and loss, such as unrealized holding gains and losses on equity securities, realized gains and losses on equity and debt securities, and amounts earned on our investments in U.S. Treasury securities. Investment and other income decreased for the year ended December 31, 2021 as compared to 2020, due to lower average yields experienced within our investment portfolio during 2021, as well as lower gains on equity securities. Income taxes We recorded a benefit from income taxes of $1.2 million for the year ended December 31, 2021 compared with a provision for income taxes of $2.0 million for the year ended December 31, 2020. The benefit from income taxes in 2021 reflected the generation of additional available state research and development tax credits. The provision for income taxes in 2020 primarily related to state income generated as a result of the license agreements with Merck entered into in 2020. We utilized net operating loss carryforwards to offset the federal tax liability in 2020. Liquidity and capital resources (dollars in thousands) Cash, cash equivalents and investments Working capital Stockholders’ equity (dollars in thousands) Cash provided by (used in): Operating activities Investing activities Financing activities December 31, 2021 2020 2019 $ 2,160,036 $ 2,660,250 $ 868,338 2,300,340 3,065,139 2,674,246 3,488,100 917,284 1,876,287 Years ended December 31, 2021 2020 2019 $ (499,007) $ 856,568 $ (163,737) 288,884 (1,419,012) (277,729) 77,779 846,108 637,842 The change in net cash from operating activities from 2021 as compared to 2020 was primarily related to the change in our net income (loss), working capital fluctuations and changes in our non-cash expenses, all of which are highly variable. purchase plan. The change in net cash from investing activities from 2021 as compared to 2020 reflected differences between the proceeds received from sale and maturity of our investments and amounts reinvested, and the difference for purchases of property, plant, and equipment. The change in net cash from financing activities in 2021 as compared to 2020 was driven by the proceeds from issuances of common stock in 2020, as well as lower proceeds from the exercise of stock options and employee stock We primarily have financed our operations through the issuance of our common stock, collections from commercial sales of our products, amounts received pursuant to license and collaboration agreements, and royalty revenues. To a lesser degree, we also have financed our operations through investment income. These financing and revenue sources have allowed us to maintain adequate levels of cash and investments. Our cash, cash equivalents, and investments are held in a variety of non-interest bearing bank accounts and interest-bearing instruments subject to investment guidelines allowing for holdings in U.S. government and agency securities, corporate securities, taxable municipal bonds, commercial paper and money market accounts. Our investment portfolio is structured to provide for investment maturities and access to cash to fund our anticipated working capital needs. However, if our liquidity needs should be accelerated for any reason in the near term, or investments do not pay at maturity, we may be required to sell investment securities in our portfolio prior to their scheduled maturities, which may result in a loss. As of December 31, 2021, we had $2.2 billion held in cash, cash equivalents, and investments. At our currently planned spending rates, we believe that our existing financial resources, together with product and royalty revenues, and reimbursements and profit sharing we expect to receive under our existing collaboration and license agreements, will be sufficient to fund our operations for at least the next twelve months from the date of this filing. We expect to make additional capital outlays and to increase operating expenditures over the next several years as we hire additional employees, and support our development, commercialization, invest in our facilities, and expand globally, which may require us to raise additional capital. Further, we actively evaluate various strategic transactions on an ongoing basis, including licensing or otherwise acquiring complementary products, technologies or businesses, and we may require significant additional capital in order to complete or otherwise provide funding for such transactions. We may seek additional capital through some or all of the following methods: corporate collaborations, licensing arrangements, and public or private debt or equity financings. We have no committed sources of funding and do not know whether additional capital will be available when needed, or that, if available, we will obtain financing on terms favorable to us or our stockholders. If we are unable to raise additional funds when we need them, our business and operations may be adversely affected. Material Cash Requirements Our material cash requirements in the short- and long-term consist of the following operational, capital, and manufacturing expenditures, a portion of which contain contractual or other obligations. We plan to fund our material cash requirements with our current financial resources together with our anticipated receipts of accounts receivable, product sales and royalty revenues, and reimbursements we expect to receive under our existing collaboration and license agreements. Operating expenditures. Our primary uses of cash and operating expenses relate to paying employees and consultants, administering clinical trials, marketing our products, and providing technology and facility infrastructure to support our operations. Our research and development expenses in 2021 were $1.2 billion, and we expect to increase our investment in research and development expenses in 2022. Our sales, general and administrative expenses were $716.2 million in 2021, and we expect to increase our sales, general, and administrative expenses to support our business growth in 2022. On a long-term basis, we manage future cash requirements relative to our long-term business plans. Operating costs also relate to our building leases for our office and laboratory facilities expiring in 2022 through 2029 that contain rate escalations and options for us to extend the leases. Our future minimum lease payments as of December 31, 2021 totaled $17.1 million related to short-term lease liabilities, and $64.9 million related to long-term lease liabilities. We signed a 20-year lease in June 2021 for a building complex in Everett, Washington that has not commenced as of December 31, 2021, and therefore rent payments are not included in lease liability balances as of December 31, 2021. Refer to Note 3 in the Notes to Financial Statements in Item 8 for further detail of our lease obligations. Capital expenditures. We make investments in our office, laboratory, and manufacturing facilities to enable continued expansion of our business. These include leasehold and building improvements at our approximately 1 million square feet of leased and owned properties, installation of laboratory and manufacturing equipment, computers, software, and office equipment. Our purchases for property and equipment for 2021 were $52.3 million, and we anticipate these investments to grow in 2022 to support our anticipated business growth and long-term facility needs, including a significant multi-year investment in a building complex being constructed in Everett, Washington, which is expected to provide us additional manufacturing, laboratory, and office space in the future. We expect our capital expenditures for this Everett facility to be approximately $350 million to $400 million over the next three years. Manufacturing costs, and supply agreements. Some of our inventory components and products require long lead times to manufacture. Therefore, we make substantial and often long-term investments in our supply chain in order to ensure we have enough drug product to meet current and future revenue forecasts, as well as clinical trial needs. Supply agreements primarily include non-cancelable obligations under our manufacturing, license and collaboration, and technology agreements. Further, a substantial portion of those non-cancelable obligations include minimum payments related to manufacturing our product candidates for use in our clinical trials and for commercial operations in the case of ADCETRIS. Future minimum contractual commitments under these arrangements December 31, 2021 totaled $204.3 million related to short-term obligations, and $191.7 million related to long-term obligations. Refer to Note 12 in the Notes to Financial Statements in Item 8 for further detail of our manufacturing supply agreements. 84 85 Royalties, milestones and profit-sharing associated with our licensed technology and collaboration agreements. Some of our license and collaboration agreements provide for periodic maintenance fees over specified time periods, profit share payments, and/or payments by us upon the achievement of development and regulatory milestones. Some of our licensing agreements also obligate us to pay royalties based on net sales of products utilizing licensed technology. Such royalties and profit share payments are dependent on future product sales and are contingent on events that have not yet occurred. Royalties and profit share payments totaled $225.6 million in 2021 and are expected to increase in future periods. Milestone payments generally become due and payable upon the achievement of certain events. Future milestone payments potentially owed related to in-licensed technology totaled $4.0 billion as of December 31, 2021, consisting of up to approximately $0.4 billion in development and clinical milestones, up to approximately $1.3 billion in regulatory milestones, and up to approximately $2.3 billion in commercial milestones. Recent accounting pronouncements See the section “Recent accounting pronouncements” in Note 1 to the Notes to Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10-K. 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. A summary of our investment securities follows: (dollars in thousands) Short-term investments Long-term investments Total December 31, 2021 2020 $ 1,735,202 $ 2,000,996 — 100,830 $ 1,735,202 $ 2,101,826 We have estimated the effect on our investment portfolio of a hypothetical increase in interest rates by one percent to be a reduction of $5.7 million in the fair value of our investments as of December 31, 2021. In addition, a hypothetical decrease of 10% in the effective yield of our investments would reduce our expected investment income by $0.1 million over the next twelve months based on our investment balance at December 31, 2021. 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 Europe are primarily denominated in Euros and in Canada are denominated in Canadian Dollars. We also had other transactions denominated in foreign currencies during the year ended December 31, 2021, primarily related to operations in Europe, 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 limited foreign currency exposure is to fluctuations in the Euro, British Pound, Canadian Dollar, Swiss Franc, Danish Krone, and Swedish Krona. 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. 86 87 Royalties, milestones and profit-sharing associated with our licensed technology and collaboration Item 7A. Quantitative and Qualitative Disclosures about Market Risk agreements. Some of our license and collaboration agreements provide for periodic maintenance fees over specified time periods, profit share payments, and/or payments by us upon the achievement of development and regulatory milestones. Some of our licensing agreements also obligate us to pay royalties based on net sales of products utilizing licensed technology. Such royalties and profit share payments are dependent on future product sales and are contingent on events that have not yet occurred. Royalties and profit share payments totaled $225.6 million in 2021 and are expected to increase in future periods. Milestone payments generally become due and payable upon the achievement of certain events. Future milestone payments potentially owed related to in-licensed technology totaled $4.0 billion as of December 31, 2021, consisting of up to approximately $0.4 billion in development and clinical milestones, up to approximately $1.3 billion in regulatory milestones, and up to approximately $2.3 billion in commercial milestones. Recent accounting pronouncements See the section “Recent accounting pronouncements” in Note 1 to the Notes to Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10-K. 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. A summary of our investment securities follows: (dollars in thousands) Short-term investments Long-term investments Total December 31, 2021 2020 $ 1,735,202 $ 2,000,996 100,830 $ 1,735,202 $ 2,101,826 — We have estimated the effect on our investment portfolio of a hypothetical increase in interest rates by one percent to be a reduction of $5.7 million in the fair value of our investments as of December 31, 2021. In addition, a hypothetical decrease of 10% in the effective yield of our investments would reduce our expected investment income by $0.1 million over the next twelve months based on our investment balance at December 31, 2021. 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 Europe are primarily denominated in Euros and in Canada are denominated in Canadian Dollars. We also had other transactions denominated in foreign currencies during the year ended December 31, 2021, primarily related to operations in Europe, 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 limited foreign currency exposure is to fluctuations in the Euro, British Pound, Canadian Dollar, Swiss Franc, Danish Krone, and Swedish Krona. 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. 86 87 Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Index to Financial Statements To the Board of Directors and Stockholders of Seagen Inc. Report of Independent Registered Public Accounting Firm (PCAOB ID 238) Consolidated Balance Sheets Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Page 89 91 92 93 94 95 Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Seagen Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 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, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. 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. 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. 88 89 Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Index to Financial Statements To the Board of Directors and Stockholders of Seagen Inc. Report of Independent Registered Public Accounting Firm (PCAOB ID 238) Consolidated Balance Sheets Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Page 89 91 92 93 94 95 Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Seagen Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 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, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. 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. 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. 88 89 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 1 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 incurred are offset against applicable accruals. As disclosed by management, amounts accrued for rebates and chargebacks as of December 31, 2021 are $74.9 million, with the most significant portion of the accrual balance related to ADCETRIS 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 (i) the significant judgment by management when determining the rebate estimate and (ii) the high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s estimate and significant assumptions related to payor mix and estimated purchases covered by the various state Medicaid programs. 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 various state Medicaid programs, including controls over the assumptions used to estimate the rebate. These procedures also included, among others, (i) testing management’s process for determining the rebate estimate; (ii) evaluating the appropriateness of management’s model; (iii) testing the completeness and accuracy of the underlying data used by management; and (iv) evaluating the significant assumptions used by management including payor mix and estimated purchases covered by the various state Medicaid programs. Evaluating management’s assumptions involved evaluating whether the assumptions were reasonable considering (i) the consistency of the historical covered purchases and rebate processing times; (ii) expansion of state Medicaid programs; (iii) comparing assumptions to other industry data; (iv) testing of actual rebate claims processed by the Company; and (v) whether these assumptions were consistent with evidence obtained in other areas of the audit. /s/ PricewaterhouseCoopers LLP Seattle, Washington February 9, 2022 We have served as the Company’s auditor since 1998. Seagen Inc. Consolidated Balance Sheets (In thousands, except par value) 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 Intangible assets, net Goodwill Other non-current assets Total assets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Accrued liabilities and other Total current liabilities Long-term liabilities: Operating lease liabilities, long-term Other long-term liabilities Total long-term liabilities Commitments and contingencies Stockholders’ equity: outstanding at December 31, 2020 Additional paid-in capital Accumulated other comprehensive income Accumulated deficit Total stockholders’ equity Total liabilities and stockholders’ equity Preferred stock, $0.001 par value, 5,000 shares authorized; none issued Common stock, $0.001 par value, 250,000 shares authorized; 183,381 shares issued and outstanding at December 31, 2021 and 180,902 shares issued and The accompanying notes are an integral part of these consolidated financial statements. December 31, 2021 2020 $ 424,834 $ 558,424 1,735,202 2,000,996 2,869,194 3,062,384 $ 3,719,604 $ 4,000,906 $ 114,824 $ 78,067 324,988 116,136 61,840 196,700 61,480 100,830 283,680 274,671 21,161 310,071 388,138 61,884 62,784 124,668 389,256 200,663 119,239 210,073 57,889 — 260,593 274,671 47,184 454,030 568,854 56,665 28,946 85,611 — 183 1,179 4,607,816 4,356,922 181 565 (1,544,039) (869,568) 3,065,139 3,488,100 $ 3,719,604 $ 4,000,906 90 91 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 1 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 incurred are offset against applicable accruals. As disclosed by management, amounts accrued for rebates and chargebacks as of December 31, 2021 are $74.9 million, with the most significant portion of the accrual balance related to ADCETRIS 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 (i) the significant judgment by management when determining the rebate estimate and (ii) the high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s estimate and significant assumptions related to payor mix and estimated purchases covered by the various state Medicaid programs. 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 various state Medicaid programs, including controls over the assumptions used to estimate the rebate. These procedures also included, among others, (i) testing management’s process for determining the rebate estimate; (ii) evaluating the appropriateness of management’s model; (iii) testing the completeness and accuracy of the underlying data used by management; and (iv) evaluating the significant assumptions used by management including payor mix and estimated purchases covered by the various state Medicaid programs. Evaluating management’s assumptions involved evaluating whether the assumptions were reasonable considering (i) the consistency of the historical covered purchases and rebate processing times; (ii) expansion of state Medicaid programs; (iii) comparing assumptions to other industry data; (iv) testing of actual rebate claims processed by the Company; and (v) whether these assumptions were consistent with evidence obtained in other areas of the audit. /s/ PricewaterhouseCoopers LLP Seattle, Washington February 9, 2022 We have served as the Company’s auditor since 1998. Seagen Inc. Consolidated Balance Sheets (In thousands, except par value) December 31, 2021 2020 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 Intangible assets, net Goodwill Other non-current assets Total assets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Accrued liabilities and other Total current liabilities Long-term liabilities: Operating lease liabilities, long-term Other long-term liabilities Total long-term liabilities Commitments and contingencies Stockholders’ equity: $ 424,834 $ 558,424 2,000,996 324,988 116,136 61,840 3,062,384 196,700 61,480 100,830 283,680 274,671 21,161 $ 3,719,604 $ 4,000,906 1,735,202 389,256 200,663 119,239 2,869,194 210,073 57,889 — 260,593 274,671 47,184 $ 114,824 $ 454,030 568,854 78,067 310,071 388,138 56,665 28,946 85,611 61,884 62,784 124,668 Preferred stock, $0.001 par value, 5,000 shares authorized; none issued — Common stock, $0.001 par value, 250,000 shares authorized; 183,381 shares issued and outstanding at December 31, 2021 and 180,902 shares issued and outstanding at December 31, 2020 Additional paid-in capital Accumulated other comprehensive income Accumulated deficit Total stockholders’ equity Total liabilities and stockholders’ equity 183 4,607,816 1,179 181 4,356,922 565 (869,568) 3,488,100 $ 3,719,604 $ 4,000,906 (1,544,039) 3,065,139 The accompanying notes are an integral part of these consolidated financial statements. 90 91 Seagen Inc. Consolidated Statements of Comprehensive Income (Loss) (In thousands, except per share amounts) Consolidated Statements of Stockholders’ Equity Seagen Inc. (In thousands) Revenues: Net product sales Royalty revenues Collaboration and license agreement revenues Total revenues Costs and expenses: Cost of sales Research and development Selling, general and administrative Total costs and expenses (Loss) income from operations Investment and other income, net (Loss) income before income taxes (Benefit) provision for income taxes Net (loss) income Net (loss) income per share - basic Net (loss) income per share - diluted Shares used in computation of per share amounts - basic Shares used in computation of per share amounts - diluted Comprehensive (loss) income: Net (loss) income Other comprehensive income: Years ended December 31, 2021 2020 2019 $ 1,385,566 $ 1,000,598 $ 150,523 38,282 1,574,371 126,756 1,048,182 2,175,536 627,977 138,491 150,245 916,713 311,565 1,228,672 716,190 2,256,427 (682,056) 6,351 (675,705) (1,234) (674,471) $ (3.70) $ 217,720 827,129 533,835 1,578,684 596,852 18,849 615,701 2,031 613,670 $ 3.51 $ 43,952 719,374 373,932 1,137,258 (220,545) 61,895 (158,650) — (158,650) (0.96) (3.70) $ 3.37 $ (0.96) 182,048 182,048 174,834 182,287 165,498 165,498 $ $ $ $ (674,471) $ 613,670 $ (158,650) Unrealized (loss) gain on securities available-for-sale, net of income tax provision of $0, $0, and $0, respectively Foreign currency translation gain, net of income tax provision of $0, $0, and $0, respectively Total other comprehensive income Comprehensive (loss) income (211) (186) 204 825 614 (673,857) $ 522 336 614,006 $ 65 269 (158,381) $ The accompanying notes are an integral part of these consolidated financial statements. Balances at December 31, 2018 Net loss Other comprehensive income Issuance of common stock for stock option exercises and employee stock purchase plan Restricted stock vested during the period, net Issuance of common stock Share-based compensation Balances at December 31, 2019 Net income Other comprehensive income Issuance of common stock for stock option exercises and employee stock purchase plan Restricted stock vested during the period, net Issuance of common stock Share-based compensation Balances at December 31, 2020 Net loss Other comprehensive income Issuance of common stock for stock option exercises and employee stock purchase plan Restricted stock vested during the period, net Share-based compensation Balances at December 31, 2021 Common stock Shares Amount Additional paid-in capital Accumulated other comprehensive income (loss) Accumulated stockholders’ deficit Total equity 160,262 $ 160 $ 2,598,411 $ (40) $ (1,324,588) $ 1,273,943 (158,650) (158,650) 171,994 — — 2,621 897 8,214 — — — — — — 2,466 1,442 5,000 1,545 934 — 180,902 — — 3 1 8 — 172 — — 2 2 5 — 181 — — 1 1 — — — 89,148 (1) 548,683 122,883 3,359,124 — — 96,255 (2) 749,845 151,700 4,356,922 — — 77,778 (1) 173,117 — 269 — — — — 229 — 336 — — — — 565 — 614 — — — (1,483,238) 1,876,287 613,670 — — — — — — — — — — — — — — (869,568) (674,471) 269 89,151 — 548,691 122,883 613,670 336 96,257 — 749,850 151,700 3,488,100 (674,471) 614 77,779 — 173,117 183,381 $ 183 $ 4,607,816 $ 1,179 $ (1,544,039) $ 3,065,139 The accompanying notes are an integral part of these consolidated financial statements. 92 93 Seagen Inc. Consolidated Statements of Comprehensive Income (Loss) (In thousands, except per share amounts) Seagen Inc. Consolidated Statements of Stockholders’ Equity (In thousands) Collaboration and license agreement revenues Revenues: Net product sales Royalty revenues Total revenues Costs and expenses: Cost of sales Research and development Selling, general and administrative Total costs and expenses (Loss) income from operations Investment and other income, net (Loss) income before income taxes (Benefit) provision for income taxes Net (loss) income Net (loss) income per share - basic Net (loss) income per share - diluted Shares used in computation of per share amounts - basic Shares used in computation of per share amounts - diluted Comprehensive (loss) income: Net (loss) income Other comprehensive income: Unrealized (loss) gain on securities available-for-sale, net of income tax provision of $0, $0, and $0, respectively Foreign currency translation gain, net of income tax provision of $0, $0, and $0, respectively Total other comprehensive income Comprehensive (loss) income Years ended December 31, 2021 2020 2019 $ 1,385,566 $ 1,000,598 $ 627,977 150,523 38,282 1,574,371 311,565 1,228,672 716,190 126,756 1,048,182 2,175,536 217,720 827,129 533,835 138,491 150,245 916,713 43,952 719,374 373,932 2,256,427 1,578,684 1,137,258 (682,056) 596,852 (220,545) 6,351 18,849 61,895 (675,705) 615,701 (158,650) (1,234) 2,031 — (674,471) $ 613,670 $ (158,650) (3.70) $ (3.70) $ 3.51 $ 3.37 $ 182,048 182,048 174,834 182,287 (0.96) (0.96) 165,498 165,498 $ $ $ $ (674,471) $ 613,670 $ (158,650) (211) (186) 825 614 522 336 204 65 269 $ (673,857) $ 614,006 $ (158,381) The accompanying notes are an integral part of these consolidated financial statements. Balances at December 31, 2018 Net loss Other comprehensive income Issuance of common stock for stock option exercises and employee stock purchase plan Restricted stock vested during the period, net Issuance of common stock Share-based compensation Balances at December 31, 2019 Net income Other comprehensive income Issuance of common stock for stock option exercises and employee stock purchase plan Restricted stock vested during the period, net Issuance of common stock Share-based compensation Balances at December 31, 2020 Net loss Other comprehensive income Issuance of common stock for stock option exercises and employee stock purchase plan Restricted stock vested during the period, net Share-based compensation Balances at December 31, 2021 Common stock Shares Amount Additional paid-in capital Accumulated other comprehensive income (loss) Accumulated deficit Total stockholders’ equity 160,262 $ 160 $ 2,598,411 $ (40) $ (1,324,588) $ 1,273,943 — — 2,621 897 8,214 — 171,994 — — 2,466 1,442 5,000 — 180,902 — — 1,545 934 — — — 3 1 8 — 172 — — 2 2 5 — 181 — — 1 1 — — — 89,148 (1) 548,683 122,883 3,359,124 — — 96,255 (2) 749,845 151,700 4,356,922 — — 77,778 (1) 173,117 — 269 — — — — 229 — 336 — — — — 565 — 614 — — — (158,650) (158,650) — — — — — 269 89,151 — 548,691 122,883 (1,483,238) 1,876,287 613,670 — — — — — (869,568) (674,471) — — — — 613,670 336 96,257 — 749,850 151,700 3,488,100 (674,471) 614 77,779 — 173,117 183,381 $ 183 $ 4,607,816 $ 1,179 $ (1,544,039) $ 3,065,139 The accompanying notes are an integral part of these consolidated financial statements. 92 93 Seagen Inc. Consolidated Statements of Cash Flows (In thousands) Operating activities: Net (loss) income Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities Share-based compensation Depreciation and amortization Amortization of intangible assets Amortization of right-of-use-assets Amortization of premiums, accretion of discounts, and (gains) losses on debt securities Gain on equity securities (Gain) loss on disposals of property and equipment Deferred income taxes Changes in operating assets and liabilities: Accounts receivable, net Inventories Prepaid expenses and other assets Lease liabilities Deferred revenue Other liabilities Net cash (used) provided by operating activities Investing activities: Purchases of securities Proceeds from maturities of securities Proceeds from sales of securities Purchases of property and equipment Net cash provided (used) by investing activities Financing activities: Net proceeds from issuance of common stock Proceeds from exercise of stock options and employee stock purchase plan Net cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Years ended December 31, 2021 2020 2019 $ (674,471) $ 613,670 $ (158,650) 173,117 42,854 23,087 12,685 147,233 36,045 16,345 10,994 15,933 (4,744) — 548 3,104 (11,604) (26) (2,053) (64,268) (84,527) (66,422) (88,727) (30,204) (22,231) (14,388) (11,271) — 141,589 (499,007) — 195,293 856,568 (3,424,286) 3,765,500 — (52,330) 288,884 (2,483,336) 952,000 194,733 (82,409) (1,419,012) 127,349 23,759 15 9,740 (4,916) (50,124) 1,853 — (89,720) (32,693) 2,459 (6,660) (33,600) 47,451 (163,737) (992,976) 786,000 — (70,753) (277,729) — 749,850 548,691 77,779 77,779 (1,246) (133,590) 558,424 424,834 $ 96,258 846,108 198 283,862 274,562 558,424 $ 89,151 637,842 — 196,376 78,186 274,562 $ The accompanying notes are an integral part of these consolidated financial statements. Seagen Inc. Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies - Organization We are a biotechnology company that develops and commercializes targeted therapies to treat cancer. We are commercializing ADCETRIS®, or brentuximab vedotin, for the treatment of certain CD30-expressing lymphomas, PADCEV®, or enfortumab vedotin-ejfv, for the treatment of certain metastatic urothelial cancers, TIVDAK™, or tisotumab vedotin-tftv, for the treatment of certain metastatic cervical cancers, and TUKYSA®, or tucatinib, for treatment of certain metastatic HER2-positive breast cancers. We are also advancing a pipeline of novel therapies for solid tumors and blood-related cancers designed to address unmet medical needs and improve treatment outcomes for patients. Many of our programs, including ADCETRIS, PADCEV and TIVDAK, are based on our antibody-drug conjugate, or ADC, technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells. Basis of presentation The accompanying consolidated financial statements reflect the accounts of Seagen Inc. and its wholly-owned subsidiaries (collectively “Seagen,” “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. 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. 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, accrued liabilities, including those related to the long-term incentive plans and performance-based equity, clinical trials and contingencies, and stock option valuation. We consider all highly liquid investments with maturities of three months or less at the date of acquisition to be Cash and cash equivalents cash equivalents. Non-cash activities for additional information. Investments We had $9.9 million and $6.0 million of accrued capital expenditures as of December 31, 2021 and 2020, 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 years ended December 31, 2021, 2020 and 2019, we recorded $9.1 million, $7.2 million, and $40.3 million, respectively, of right-of-use assets in exchange for lease liabilities, which has been treated as a non-cash operating activity. See Note 3 We hold certain equity securities which are reported at estimated fair value based on quoted market prices. Changes in the fair value of equity securities are recorded in income or loss. The cost of equity securities for purposes of computing gains and losses is based on the specific identification method. 94 95 Consolidated Statements of Cash Flows Seagen Inc. (In thousands) Operating activities: Net (loss) income Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities Share-based compensation Depreciation and amortization Amortization of intangible assets Amortization of right-of-use-assets losses on debt securities Gain on equity securities Amortization of premiums, accretion of discounts, and (gains) (Gain) loss on disposals of property and equipment Deferred income taxes Changes in operating assets and liabilities: Accounts receivable, net Inventories Prepaid expenses and other assets Lease liabilities Deferred revenue Other liabilities Net cash (used) provided by operating activities Investing activities: Purchases of securities Proceeds from maturities of securities Proceeds from sales of securities Purchases of property and equipment Net cash provided (used) by investing activities Financing activities: Net proceeds from issuance of common stock Proceeds from exercise of stock options and employee stock purchase plan Net cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Years ended December 31, 2021 2020 2019 $ (674,471) $ 613,670 $ (158,650) 173,117 147,233 36,045 16,345 10,994 127,349 23,759 15 9,740 42,854 23,087 12,685 15,933 3,104 (4,916) (4,744) (11,604) (50,124) — 548 (26) (2,053) 1,853 — (64,268) (84,527) (66,422) (88,727) (30,204) (22,231) (14,388) (11,271) — 141,589 (499,007) — 195,293 856,568 (89,720) (32,693) 2,459 (6,660) (33,600) 47,451 (163,737) (3,424,286) (2,483,336) (992,976) 3,765,500 — 952,000 194,733 786,000 — (52,330) (82,409) (70,753) 288,884 (1,419,012) (277,729) — 749,850 548,691 77,779 77,779 (1,246) (133,590) 558,424 96,258 846,108 198 283,862 274,562 89,151 637,842 — 196,376 78,186 $ 424,834 $ 558,424 $ 274,562 The accompanying notes are an integral part of these consolidated financial statements. Seagen Inc. Notes to Consolidated Financial Statements - 1. Organization and Summary of Significant Accounting Policies Organization We are a biotechnology company that develops and commercializes targeted therapies to treat cancer. We are commercializing ADCETRIS®, or brentuximab vedotin, for the treatment of certain CD30-expressing lymphomas, PADCEV®, or enfortumab vedotin-ejfv, for the treatment of certain metastatic urothelial cancers, TIVDAK™, or tisotumab vedotin-tftv, for the treatment of certain metastatic cervical cancers, and TUKYSA®, or tucatinib, for treatment of certain metastatic HER2-positive breast cancers. We are also advancing a pipeline of novel therapies for solid tumors and blood-related cancers designed to address unmet medical needs and improve treatment outcomes for patients. Many of our programs, including ADCETRIS, PADCEV and TIVDAK, are based on our antibody-drug conjugate, or ADC, technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells. Basis of presentation The accompanying consolidated financial statements reflect the accounts of Seagen Inc. and its wholly-owned subsidiaries (collectively “Seagen,” “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. 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. 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, accrued liabilities, including those related to the long-term incentive plans and performance-based equity, clinical trials and contingencies, and stock option valuation. 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 $9.9 million and $6.0 million of accrued capital expenditures as of December 31, 2021 and 2020, 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 years ended December 31, 2021, 2020 and 2019, we recorded $9.1 million, $7.2 million, and $40.3 million, respectively, of right-of-use assets in exchange for lease liabilities, which has been treated as a non-cash operating activity. See Note 3 for additional information. Investments We hold certain equity securities which are reported at estimated fair value based on quoted market prices. Changes in the fair value of equity securities are recorded in income or loss. The cost of equity securities for purposes of computing gains and losses is based on the specific identification method. 94 95 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements 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 (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. Accrued interest receivable as of December 31, 2021 and 2020, were $0.4 million and $5.3 million, respectively, and were included in prepaid expenses and other current assets. 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. 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 determine if an arrangement is a lease at inception date. All of our currently effective 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 are 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 and improvements Laboratory and manufacturing equipment Furniture and fixtures Computers, software and office equipment 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. Intangible assets, net Our intangible assets are primarily comprised of acquired TUKYSA technology. Upon FDA approval and commercial launch of TUKYSA in April 2020, we classified in-process research and development costs related to the acquired TUKYSA technology as finite-lived intangible assets. The following table presents the balances of our finite- lived intangible assets for the periods presented: Years 20-30 5-15 5 3 December 31, 2021 2020 $ $ 305,650 $ (45,057) 260,593 $ 305,650 (21,970) 283,680 Years ended December 31, 2021 2020 2019 $ 23,087 $ 16,345 $ — (dollars in thousands) Gross carrying value Less: accumulated amortization Total (dollars in thousands ) Amortization expense Goodwill The following table presents our amortization expense related to acquired TUKYSA technology costs, included in cost of sales in our consolidated statements of comprehensive income (loss), for the periods presented: The weighted average useful life of our finite-lived intangible assets was 11 years as of December 31, 2021, and estimated future amortization expense related to acquired TUKYSA technology costs is $23.1 million for each of the years ending December 31, 2022 through December 31, 2026. We evaluate 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 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. 96 97 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements 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 (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. Accrued interest receivable as of December 31, 2021 and 2020, were $0.4 million and $5.3 million, respectively, and were included in prepaid expenses and other current assets. 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. 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 determine if an arrangement is a lease at inception date. All of our currently effective 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 are 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 and improvements Laboratory and manufacturing equipment Furniture and fixtures Computers, software and office equipment Years 20-30 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. Intangible assets, net Our intangible assets are primarily comprised of acquired TUKYSA technology. Upon FDA approval and commercial launch of TUKYSA in April 2020, we classified in-process research and development costs related to the acquired TUKYSA technology as finite-lived intangible assets. The following table presents the balances of our finite- lived intangible assets for the periods presented: (dollars in thousands) Gross carrying value Less: accumulated amortization Total December 31, 2021 2020 $ $ 305,650 $ (45,057) 260,593 $ 305,650 (21,970) 283,680 The following table presents our amortization expense related to acquired TUKYSA technology costs, included in cost of sales in our consolidated statements of comprehensive income (loss), for the periods presented: (dollars in thousands ) Amortization expense Years ended December 31, 2021 2020 2019 $ 23,087 $ 16,345 $ — The weighted average useful life of our finite-lived intangible assets was 11 years as of December 31, 2021, and estimated future amortization expense related to acquired TUKYSA technology costs is $23.1 million for each of the years ending December 31, 2022 through December 31, 2026. Goodwill We evaluate 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 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. 96 97 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements Impairment of long-lived assets Revenue recognition - Royalty revenues We assess the impairment of long-lived assets, including intangible assets and 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, 2021 as there have been no events warranting an impairment analysis. Our long-lived assets are primarily located in the U.S.; however, we have multiple subsidiaries in foreign jurisdictions, including several subsidiaries in Europe. Revenue recognition - Net product sales We sell our products primarily through a limited number of specialty distributors and specialty pharmacies in the U.S, and to a lesser extent, internationally. The delivery of our products represents a single performance obligation for these transactions and we record net product sales at the point in time when control is transferred to the customer, which generally occurs upon receipt by the customer. The transaction price for net 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. Outside of the U.S., the transaction price for net product sales represents the amount we expect to receive, which is net of estimated discounts, estimated government mandated rebates, distribution fees, estimated product returns, and other deductions. Accruals are established for these deductions, and actual amounts incurred are offset against applicable accruals. These estimates involve judgment in estimating net product sales. U.S. 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. We 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 a specified number of days of its expiration date or that is damaged. We estimate product returns based on our experience to-date using the expected value approach. We provide financial assistance to qualifying patients that are underinsured or cannot cover the cost of commercial coinsurance amounts through our patient support programs. 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. Royalty revenues primarily reflect amounts earned under the ADCETRIS collaboration with Takeda Pharmaceutical Company Limited, or 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 low single digit third-party royalty costs owed on its sales of ADCETRIS. This amount is included in royalty revenues. Amounts owed to our third-party licensors related to Takeda’s sales of ADCETRIS are recorded in cost of sales. These amounts are recognized in the period in which the related sales by Takeda occur. Royalty revenues also reflect amounts from Genentech, Inc., a member of the Roche Group, or Genentech, earned on net sales of Polivy, and amounts from GlaxoSmithKline earned on net sales of Blenrep. Revenue recognition - Collaboration and license agreement revenues We have collaboration and license agreements for our technology with a number of biotechnology and pharmaceutical companies. Under these agreements, 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. Generally, 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 may not take a substantive role or control the research, development or commercialization of any products generated by some of our licensees, we may not be 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 certain of our collaboration and license agreements involve a substantial degree of uncertainty and risk that they may never be received. 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. Upfront payments are 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. For agreements beyond the initial performance period, we have no remaining performance obligations. We may receive license maintenance fees and potential milestones and royalties based on collaborator development and regulatory progress, which are recorded in the period achieved in the case of milestones, and during the period of the related sales for royalties. 98 99 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements Impairment of long-lived assets Revenue recognition - Royalty revenues We assess the impairment of long-lived assets, including intangible assets and 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, 2021 as there have been no events warranting an impairment analysis. Our long-lived assets are primarily located in the U.S.; however, we have multiple subsidiaries in foreign jurisdictions, including several subsidiaries in Europe. Revenue recognition - Net product sales We sell our products primarily through a limited number of specialty distributors and specialty pharmacies in the U.S, and to a lesser extent, internationally. The delivery of our products represents a single performance obligation for these transactions and we record net product sales at the point in time when control is transferred to the customer, which generally occurs upon receipt by the customer. The transaction price for net 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. Outside of the U.S., the transaction price for net product sales represents the amount we expect to receive, which is net of estimated discounts, estimated government mandated rebates, distribution fees, estimated product returns, and other deductions. Accruals are established for these deductions, and actual amounts incurred are offset against applicable accruals. These estimates involve judgment in estimating net product sales. U.S. 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. We 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 a specified number of days of its expiration date or that is damaged. We estimate product returns based on our experience to-date using the expected value approach. We provide financial assistance to qualifying patients that are underinsured or cannot cover the cost of commercial coinsurance amounts through our patient support programs. 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. Royalty revenues primarily reflect amounts earned under the ADCETRIS collaboration with Takeda Pharmaceutical Company Limited, or 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 low single digit third-party royalty costs owed on its sales of ADCETRIS. This amount is included in royalty revenues. Amounts owed to our third-party licensors related to Takeda’s sales of ADCETRIS are recorded in cost of sales. These amounts are recognized in the period in which the related sales by Takeda occur. Royalty revenues also reflect amounts from Genentech, Inc., a member of the Roche Group, or Genentech, earned on net sales of Polivy, and amounts from GlaxoSmithKline earned on net sales of Blenrep. Revenue recognition - Collaboration and license agreement revenues We have collaboration and license agreements for our technology with a number of biotechnology and pharmaceutical companies. Under these agreements, 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. Generally, 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 may not take a substantive role or control the research, development or commercialization of any products generated by some of our licensees, we may not be 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 certain of our collaboration and license agreements involve a substantial degree of uncertainty and risk that they may never be received. 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. Upfront payments are 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. For agreements beyond the initial performance period, we have no remaining performance obligations. We may receive license maintenance fees and potential milestones and royalties based on collaborator development and regulatory progress, which are recorded in the period achieved in the case of milestones, and during the period of the related sales for royalties. 98 99 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements 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. We sell our products through a limited number of distributors and specialty pharmacies. The following table presents each major distributor or collaborator that comprised more than 10% of total revenue: Research and development expenses The following table presents each major distributor or collaborator that accounted for more than 10% of accounts 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 $88.8 million, $59.3 million, and $33.5 million in advertising expenses during 2021, 2020, and 2019, 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. Allowance for doubtful accounts We estimate an allowance for doubtful accounts based on our assessment of the collectability of customer accounts. We regularly review the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. As of December 31, 2021 and 2020, there was no allowance for doubtful accounts, and we recognized no credit losses during the years ended December 31, 2021, 2020, and 2019. Geographic and customer information Net product revenues are attributed to countries based on the location of the customer. Royalty revenues and collaboration and licenses agreements revenues are attributed to countries based on the location of the Company’s subsidiary associated with the royalty or collaborative arrangement related to such revenues. Over 90% of our revenues and assets are related to operations in the U.S. for all periods presented; however, we have multiple subsidiaries in foreign jurisdictions, including several subsidiaries in Europe. 100 101 Years ended December 31, 2021 2020 2019 36 % 27 % 17 % 9 % — % 18 % 15 % 10 % 7 % 45 % 29 % 22 % 16 % 11 % 26 % 21 % 18 % 27 % — % 32 % 25 % 16 % 13 % December 31, 2021 2020 Distributor A Distributor B Distributor C Collaborator A Collaborator B receivable: Distributor A Distributor B Distributor C Collaborator A Major suppliers our business. Income taxes The use of a relatively small number of contract manufacturers to supply drug necessary for our commercial and clinical operations create a concentration of risk for us. While primarily one source of supply is utilized for certain components of our approved products and our clinical product candidates, other sources are available should we need to change suppliers. For PADCEV, in particular, we rely on Astellas for both commercial and clinical supply as Astellas oversees the manufacturing supply chain. As a form of reducing near-term risk, we endeavor to maintain reasonable levels of drug supply inventory across the supply chain. A change in suppliers or disruption at one of our suppliers, however, could cause a delay or interruption in delivery of drug or clinical trials. Such an event would adversely affect 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 substantially all our deferred tax assets for all periods presented. A valuation allowance is recorded when it is more likely than not that some portion or all of the net deferred tax asset will not be realized. Future realization of deferred tax assets is dependent upon a number of factors, including the existence of sufficient taxable income based on future earnings, the timing and amount of which is uncertain. The assessment regarding whether a valuation allowance is required considers the evaluation of both positive and negative evidence when concluding whether it is more likely than not that deferred tax assets are realizable. Based upon a review of all available evidence, we determined that it is not more likely than not that the U.S. deferred tax assets will be realized, and therefore the deferred tax assets have been fully offset by a valuation allowance. 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. 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. Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements We sell our products through a limited number of distributors and specialty pharmacies. The following table presents each major distributor or collaborator that comprised more than 10% of total revenue: Distributor A Distributor B Distributor C Collaborator A Collaborator B Years ended December 31, 2021 2020 2019 36 % 27 % 17 % 9 % — % 18 % 15 % 10 % 7 % 45 % 26 % 21 % 18 % 27 % — % The following table presents each major distributor or collaborator that accounted for more than 10% of accounts receivable: Distributor A Distributor B Distributor C Collaborator A Major suppliers December 31, 2021 2020 29 % 22 % 16 % 11 % 32 % 25 % 16 % 13 % The use of a relatively small number of contract manufacturers to supply drug necessary for our commercial and clinical operations create a concentration of risk for us. While primarily one source of supply is utilized for certain components of our approved products and our clinical product candidates, other sources are available should we need to change suppliers. For PADCEV, in particular, we rely on Astellas for both commercial and clinical supply as Astellas oversees the manufacturing supply chain. As a form of reducing near-term risk, we endeavor to maintain reasonable levels of drug supply inventory across the supply chain. A change in suppliers or disruption at one of our suppliers, however, could cause a delay or interruption in delivery of drug 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 substantially all our deferred tax assets for all periods presented. A valuation allowance is recorded when it is more likely than not that some portion or all of the net deferred tax asset will not be realized. Future realization of deferred tax assets is dependent upon a number of factors, including the existence of sufficient taxable income based on future earnings, the timing and amount of which is uncertain. The assessment regarding whether a valuation allowance is required considers the evaluation of both positive and negative evidence when concluding whether it is more likely than not that deferred tax assets are realizable. Based upon a review of all available evidence, we determined that it is not more likely than not that the U.S. deferred tax assets will be realized, and therefore the deferred tax assets have been fully offset by a valuation allowance. 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. 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. 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. 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 costs are expensed as incurred. We incurred $88.8 million, $59.3 million, and $33.5 million in advertising expenses during 2021, 2020, and 2019, respectively. Advertising 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. Allowance for doubtful accounts We estimate an allowance for doubtful accounts based on our assessment of the collectability of customer accounts. We regularly review the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. As of December 31, 2021 and 2020, there was no allowance for doubtful accounts, and we recognized no credit losses during the years ended December 31, 2021, 2020, and 2019. Geographic and customer information Net product revenues are attributed to countries based on the location of the customer. Royalty revenues and collaboration and licenses agreements revenues are attributed to countries based on the location of the Company’s subsidiary associated with the royalty or collaborative arrangement related to such revenues. Over 90% of our revenues and assets are related to operations in the U.S. for all periods presented; however, we have multiple subsidiaries in foreign jurisdictions, including several subsidiaries in Europe. 100 101 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements Share-based compensation Certain risks and uncertainties 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, performance-based and market-based restricted stock awards We have established Long-Term Incentive Plans, or LTIPs, and have granted certain senior leadership other performance- and market-based restricted stock awards. The LTIPs and other performance-based compensation restricted stock awards provide eligible employees with the opportunity to receive performance-based incentive compensation, which may be comprised of cash and/or RSUs. The payment of cash and the grant and/or vesting of RSUs are contingent upon the achievement of pre-determined performance goals, which may include regulatory milestones, revenue targets, or total shareholder return compared to our industry peer group. We record compensation expense over the estimated service period for each performance goal subject to the achievement of the performance goal being considered probable in accordance with the provisions of ASC Topic 450--Contingencies. At each reporting date, we assess whether achievement of a performance goal 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. Comprehensive income (loss) Comprehensive income (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 income (loss) is comprised of net income (loss), unrealized gains and losses on available-for-sale securities, net of income tax provision and foreign currency translation adjustments, net of income tax provision. 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. 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. Recent accounting pronouncements adopted 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. We adopted the standard on January 1, 2021. The adoption of this ASU did not have a material impact on our financial condition, results of operations, cash flows, or financial statement disclosures. 2. Revenue from contracts with customers The following table presents our disaggregated revenue for the years presented. (dollars in thousands) ADCETRIS PADCEV TUKYSA TIVDAK Net product sales Royalty revenues Total revenues Collaboration and license agreement revenues Years ended December 31, 2021 2020 2019 $ 705,561 $ 658,577 $ 627,733 339,918 333,952 6,135 222,436 119,585 — 244 — — $ 1,385,566 $ 1,000,598 $ 627,977 $ $ 150,523 $ 126,756 $ 138,491 38,282 $ 1,048,182 $ 150,245 $ 1,574,371 $ 2,175,536 $ 916,713 102 103 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements Share-based compensation Certain risks and uncertainties 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, performance-based and market-based restricted stock awards We have established Long-Term Incentive Plans, or LTIPs, and have granted certain senior leadership other performance- and market-based restricted stock awards. The LTIPs and other performance-based compensation restricted stock awards provide eligible employees with the opportunity to receive performance-based incentive compensation, which may be comprised of cash and/or RSUs. The payment of cash and the grant and/or vesting of RSUs are contingent upon the achievement of pre-determined performance goals, which may include regulatory milestones, revenue targets, or total shareholder return compared to our industry peer group. We record compensation expense over the estimated service period for each performance goal subject to the achievement of the performance goal being considered probable in accordance with the provisions of ASC Topic 450--Contingencies. At each reporting date, we assess whether achievement of a performance goal 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. Comprehensive income (loss) Comprehensive income (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 income (loss) is comprised of net income (loss), unrealized gains and losses on available-for-sale securities, net of income tax provision and foreign currency translation adjustments, net of income tax provision. 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. 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. Recent accounting pronouncements adopted 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. We adopted the standard on January 1, 2021. The adoption of this ASU did not have a material impact on our financial condition, results of operations, cash flows, or financial statement disclosures. 2. Revenue from contracts with customers The following table presents our disaggregated revenue for the years presented. (dollars in thousands) ADCETRIS PADCEV TUKYSA TIVDAK Net product sales Royalty revenues Collaboration and license agreement revenues Total revenues Years ended December 31, 2021 2020 2019 $ 705,561 $ 658,577 $ 627,733 339,918 333,952 6,135 222,436 119,585 — 244 — — $ 1,385,566 $ 1,000,598 $ 627,977 $ $ 150,523 $ 126,756 $ 138,491 38,282 $ 1,048,182 $ 150,245 $ 1,574,371 $ 2,175,536 $ 916,713 102 103 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements In 2020, collaboration and license agreement revenues included $975.2 million related to our LV and TUKYSA license and collaboration agreements with Merck. See Note 10 for further information. In 2019, other collaboration and license agreement revenues included $20.0 million from BeiGene, Ltd., or BeiGene. 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, 2021 and 2020. We recognized collaboration and license agreement revenues of $0.0 million, $0.0 million and $33.6 million during the years ended December 31, 2021, 2020, and 2019, respectively, that were included in deferred revenue as of the beginning of the respective years. 3. Leases We have operating leases for our office and laboratory facilities with terms that expire from 2022 through 2029. During the years ended December 31, 2021, 2020 and 2019, we recorded $9.1 million, $7.2 million and $40.3 million of right-of-use assets in exchange for lease liabilities, respectively. 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, 2021. In June 2021, we entered into a lease agreement for an approximately 258,000 square feet building complex to be constructed by the landlord on approximately 20.5 acres of land in Everett, Washington. We intend to use the building for future manufacturing, laboratory, and office space. Under the terms of the lease, base rent is payable at an initial rate of $4.0 million per year, subject to annual escalations of 3% during the initial term of 20 years. The lease commences on the date when construction and delivery of the building shell and related improvements by the landlord have been substantially completed. We will record a lease liability and right-of-use assets on our condensed consolidated balance sheet on the lease commencement date, which has not commenced of December 31, 2021. We have an option to renew the lease for two additional terms of ten years each. In addition, we have an option to purchase the premises in the future. Supplemental operating lease information was as follows: (dollars in thousands, except term and rate ) Operating lease cost Variable lease cost Total lease cost $ $ Cash paid for amounts included in measurement of lease liabilities $ Years ended December 31, 2021 16,219 4,227 20,446 16,814 $ $ $ 2020 15,013 3,937 18,950 14,265 $ $ $ 2019 13,590 2,958 16,548 10,197 Weighted average remaining lease term (in years) Weighted average discount rate As of December 31, 2021 2020 5.87 5.0 % 6.16 5.2 % Rent expense attributable to non-cancelable operating leases totaled approximately $16.5 million, $16.6 million, and $14.6 million for the years ended December 31, 2021, 2020, and 2019, respectively. 12,749 61,884 74,633 17,088 16,375 12,333 8,489 7,999 19,718 82,002 $ (11,432) $ 70,570 Operating lease liabilities were recorded in the following captions of our consolidated balance sheet as follows: As of December 31, 2021 2020 $ $ 13,905 $ 56,665 70,570 $ As of December 31, 2021, future minimum lease payments under the lease agreements were as follows: (dollars in thousands ) Accrued liabilities and other Operating lease liabilities, long-term Total (dollars in thousands) Years ending December 31, 2022 2023 2024 2025 2026 Thereafter Less: imputed interest Total 4. Fair Value hierarchy are: Total future minimum lease payments 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 Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, Level 2: Quoted prices in markets that are not active or financial instruments for which all significant inputs are Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unrestricted assets or liabilities. observable, either directly or indirectly. 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. 104 105 In 2020, collaboration and license agreement revenues included $975.2 million related to our LV and TUKYSA license and collaboration agreements with Merck. See Note 10 for further information. In 2019, other collaboration and license agreement revenues included $20.0 million from BeiGene, Ltd., or BeiGene. BeiGene is a related party due to a common shareholder that has a representative or representatives serving on each company's respective Board of Contract balances and performance obligations We had no contract assets or liabilities as of December 31, 2021 and 2020. We recognized collaboration and license agreement revenues of $0.0 million, $0.0 million and $33.6 million during the years ended December 31, 2021, 2020, and 2019, respectively, that were included in deferred revenue as of the beginning of the respective years. Directors. 3. Leases We have operating leases for our office and laboratory facilities with terms that expire from 2022 through 2029. During the years ended December 31, 2021, 2020 and 2019, we recorded $9.1 million, $7.2 million and $40.3 million of right-of-use assets in exchange for lease liabilities, respectively. 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, 2021. In June 2021, we entered into a lease agreement for an approximately 258,000 square feet building complex to be constructed by the landlord on approximately 20.5 acres of land in Everett, Washington. We intend to use the building for future manufacturing, laboratory, and office space. Under the terms of the lease, base rent is payable at an initial rate of $4.0 million per year, subject to annual escalations of 3% during the initial term of 20 years. The lease commences on the date when construction and delivery of the building shell and related improvements by the landlord have been substantially completed. We will record a lease liability and right-of-use assets on our condensed consolidated balance sheet on the lease commencement date, which has not commenced of December 31, 2021. We have an option to renew the lease for two additional terms of ten years each. In addition, we have an option to purchase the premises in the future. Supplemental operating lease information was as follows: (dollars in thousands, except term and rate ) Operating lease cost Variable lease cost Total lease cost Cash paid for amounts included in measurement of lease liabilities $ Years ended December 31, 2021 16,219 4,227 20,446 16,814 $ $ $ 2020 15,013 3,937 18,950 14,265 $ $ $ $ $ 2019 13,590 2,958 16,548 10,197 Weighted average remaining lease term (in years) Weighted average discount rate As of December 31, 2021 2020 5.87 5.0 % 6.16 5.2 % Rent expense attributable to non-cancelable operating leases totaled approximately $16.5 million, $16.6 million, and $14.6 million for the years ended December 31, 2021, 2020, and 2019, respectively. Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements 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 As of December 31, 2021 2020 $ $ 13,905 $ 56,665 70,570 $ As of December 31, 2021, future minimum lease payments under the lease agreements were as follows: (dollars in thousands) Years ending December 31, 2022 2023 2024 2025 2026 Thereafter Total future minimum lease payments Less: imputed interest Total 4. Fair Value 12,749 61,884 74,633 17,088 16,375 12,333 8,489 7,999 19,718 82,002 $ (11,432) $ 70,570 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. 104 105 Years ended December 31, 2021 2020 2019 $ $ 4,744 $ 11,604 $ 1,607 7,245 6,351 $ 18,849 $ 50,124 11,771 61,895 Gain on equity securities includes the realized and unrealized holding gains and losses on our equity securities. Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements The fair value hierarchy of assets carried at fair value and measured on a recurring basis was as follows: 5. Investment and Other Income, Net Fair value measurement using: Investment and other income, net consisted of the following: (dollars in thousands) December 31, 2021 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 $ 1,735,202 $ Other non-current assets—equity securities 14,009 Total December 31, 2020 $ 1,749,211 $ Short-term investments—U.S. Treasury securities $ 2,000,996 $ Long-term investments—U.S. Treasury securities 100,830 Total $ 2,101,826 $ — $ — — $ — $ — — $ — $ 1,735,202 — 14,009 — $ 1,749,211 — $ 2,000,996 — 100,830 — $ 2,101,826 Our short- and long-term debt investments portfolio only contains investments in U.S. Treasury and other U.S. government-backed securities. We review our portfolio based on the underlying risk profile of the securities and have a zero loss expectation for these investments. We also regularly review the securities in an unrealized loss position and evaluate the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. During the years ended December 31, 2021, 2020 and 2019, we recognized no year-to-date credit loss related to our short- and long-term investments, and had no allowance for credit loss recorded as of December 31, 2021. Our debt securities consisted of the following: (dollars in thousands) December 31, 2021 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, 2020 U.S. Treasury securities Amortized cost Gross unrealized gains Gross unrealized losses Fair value $ 1,735,388 $ 12 $ (198) $ 1,735,202 $ 1,635,307 100,081 $ 1,735,388 $ 1,635,118 100,084 $ 1,735,202 $ 2,101,801 $ 259 $ (234) $ 2,101,826 Contractual maturities (at date of purchase): Due in one year or less Due in one to two years Total $ 1,791,399 310,402 $ 2,101,801 $ 1,791,239 310,587 $ 2,101,826 (dollars in thousands) Gain on equity securities Investment and other income, net Total investment and other income, net 6. Inventories Inventories consisted of the following: (dollars in thousands) Raw materials Work in process Finished goods Total 7. 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, 2021 2020 $ 12,181 $ 152,635 35,847 3,799 95,250 17,087 $ 200,663 $ 116,136 December 31, 2021 2020 $ 193,635 $ 204,918 104,702 49,806 52,078 17,563 4,771 78,724 23,341 45,141 15,825 4,771 422,555 372,720 (212,482) (176,020) $ 210,073 $ 196,700 We capitalize our commercial inventory costs. Inventory that is deployed into clinical, research or development use is charged to research and development expense when it is no longer available for use in commercial sales. Depreciation and amortization expenses on property and equipment totaled $42.9 million, $36.0 million, and $23.8 million for the years ended December 31, 2021, 2020, and 2019, respectively. Leasehold improvements included $44.0 million and $24.5 million of construction in process at December 31, 2021 and 2020, respectively. 106 107 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements The fair value hierarchy of assets carried at fair value and measured on a recurring basis was as follows: 5. Investment and Other Income, Net Fair value measurement using: Investment and other income, net consisted of the following: Quoted prices in active markets for identical assets (Level 1) Other observable inputs (Level 2) Significant unobservable inputs (Level 3) Total (dollars in thousands) December 31, 2021 Total December 31, 2020 Short-term investments—U.S. Treasury securities $ 1,735,202 $ Other non-current assets—equity securities 14,009 $ 1,749,211 $ Short-term investments—U.S. Treasury securities $ 2,000,996 $ Long-term investments—U.S. Treasury securities 100,830 Total $ 2,101,826 $ — $ — — $ — $ — — $ — $ 1,735,202 — 14,009 — $ 1,749,211 — $ 2,000,996 — 100,830 — $ 2,101,826 Our short- and long-term debt investments portfolio only contains investments in U.S. Treasury and other U.S. government-backed securities. We review our portfolio based on the underlying risk profile of the securities and have a zero loss expectation for these investments. We also regularly review the securities in an unrealized loss position and evaluate the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. During the years ended December 31, 2021, 2020 and 2019, we recognized no year-to-date credit loss related to our short- and long-term investments, and had no allowance for credit loss recorded as of December 31, 2021. Our debt securities consisted of the following: Amortized cost Gross unrealized gains Gross unrealized losses Fair value $ 1,735,388 $ 12 $ (198) $ 1,735,202 Contractual maturities (at date of purchase): (dollars in thousands) December 31, 2021 U.S. Treasury securities Due in one year or less Due in one to two years Total December 31, 2020 U.S. Treasury securities Due in one year or less Due in one to two years Total $ 1,635,307 100,081 $ 1,735,388 $ 1,791,399 310,402 $ 2,101,801 Contractual maturities (at date of purchase): $ 2,101,801 $ 259 $ (234) $ 2,101,826 $ 1,635,118 100,084 $ 1,735,202 $ 1,791,239 310,587 $ 2,101,826 (dollars in thousands) Gain on equity securities Investment and other income, net Total investment and other income, net Years ended December 31, 2021 2020 2019 $ $ 4,744 $ 11,604 $ 1,607 7,245 6,351 $ 18,849 $ 50,124 11,771 61,895 Gain on equity securities includes the realized and unrealized holding gains and losses on our equity securities. 6. Inventories Inventories consisted of the following: (dollars in thousands) Raw materials Work in process Finished goods Total December 31, 2021 2020 $ $ 12,181 $ 152,635 35,847 200,663 $ 3,799 95,250 17,087 116,136 We capitalize our commercial inventory costs. Inventory that is deployed into clinical, research or development use is charged to research and development expense when it is no longer available for use in commercial sales. 7. 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, 2021 193,635 $ 104,702 49,806 52,078 17,563 4,771 422,555 (212,482) 210,073 $ 2020 204,918 78,724 23,341 45,141 15,825 4,771 372,720 (176,020) 196,700 $ $ Depreciation and amortization expenses on property and equipment totaled $42.9 million, $36.0 million, and $23.8 million for the years ended December 31, 2021, 2020, and 2019, respectively. Leasehold improvements included $44.0 million and $24.5 million of construction in process at December 31, 2021 and 2020, respectively. 106 107 Seagen Inc. Notes to Consolidated Financial Statements 8. 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 Other Total 9. Income taxes December 31, 2021 139,052 $ 122,468 21,867 81,316 89,327 454,030 $ 2020 96,902 69,756 20,765 52,565 70,083 310,071 $ $ Our income (loss) before income taxes by jurisdiction consisted of the following: (dollars in thousands) U.S. Foreign Total Years ended December 31, 2021 2020 2019 $ (680,398) $ 613,054 $ (160,189) 4,693 2,647 1,539 $ (675,705) $ 615,701 $ (158,650) 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 State income taxes and other Valuation allowance Stock compensation Non-deductible asset basis Effective tax rate Years ended December 31, 2021 2020 2019 21.0 % 7.2 4.6 (35.7) 3.1 — 0.2 % 21.0 % (5.4) 1.5 (8.4) (8.4) — 0.3 % 21.0 % 11.0 4.7 (37.1) 6.4 (6.0) 0.0 % For the year ended December 31, 2021, we recorded a tax benefit of $1.2 million, consisting of a current tax benefit of $1.7 million and a deferred tax expense of $0.5 million, primarily related to the generation of additional available state research and development tax credits. For the year ended December 31, 2020, we recorded a provision for income taxes of $2.0 million consisting primarily of $3.7 million of current state taxes offset by a net $1.7 million deferred foreign tax benefit primarily related to the release of a valuation allowance on our foreign deferred tax asset for net operating losses. We had existing federal tax carryforwards sufficient to offset any federal tax liability, and we incurred state tax liabilities of $3.7 million due to limitations on the use of existing state carryforwards against taxable income. For the year ended December 31, 2019, we did not record any income tax expense or benefit due to our valuation allowance and tax loss position. As of December 31, 2021, unremitted earnings of our foreign subsidiaries 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. Seagen Inc. Notes to Consolidated Financial Statements 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 Share-based compensation Allowance and accruals Operating lease liabilities Inventory Capitalized research and development Intangibles and amortization Total deferred tax assets Less: valuation allowance Deferred tax liability: Right-of-use assets Intangibles and amortization Depreciation Other Net deferred tax assets Total deferred tax assets, net of valuation allowance December 31, 2021 2020 $ 331,284 $ 228,041 7,566 278,925 41,087 47,119 16,461 14,629 6,947 5,399 8,341 224,233 33,315 29,355 16,596 19,402 4,139 — 749,417 563,422 (730,130) (489,519) 19,287 73,903 (13,434) — (3,428) (920) $ 1,505 $ (13,647) (46,018) (10,215) (1,970) 2,053 A valuation allowance of $730.1 million and $489.5 million at December 31, 2021 and 2020, respectively, has been recognized to offset net deferred tax assets where realization of such assets is uncertain. The valuation allowance increased by $240.6 million in 2021, decreased by $46.8 million in 2020, and increased by $58.5 million in 2019, which was mostly related to the changes in our deferred tax asset balances. The 2021 and 2019 increases in the valuation allowance were primarily due to the net operating loss and tax credit generation. The 2020 decrease in the valuation allowance was primarily due to the net operating loss utilization, partially offset by tax credit generation. At December 31, 2021, we had gross federal NOL carryforwards of $1,347 million of which $709 million may be carried forward indefinitely and $638 million expire from 2033 to 2037 if not utilized, gross state NOL carryforwards of $614.4 million, gross foreign NOL carryforwards of $38.3 million, and tax credit carryforwards of $302.4 million expiring from 2022 to 2041. 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, 2020 and believe that it is likely that utilization of its NOLs would not be limited under Section 382 as of December 31, 2020. 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. Unrecognized tax benefits arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of uncertainties. The total amount of unrecognized tax benefit was $30.3 million and $23.1 million as of December 31, 2021 and 2020, respectively. Interest and penalties related to uncertain tax positions, if any, will be recognized as a component of income tax expense. We do not anticipate any significant changes to our unrecognized tax positions or benefits during the next twelve months. Tax years 2001 to 2021 remain subject to future examination for federal, state and foreign income taxes. 108 109 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements 8. 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 Other Total 9. Income taxes (dollars in thousands) U.S. Foreign Total Statutory federal income tax rate Tax credits State income taxes and other Valuation allowance Stock compensation Non-deductible asset basis Effective tax rate December 31, 2021 2020 $ 139,052 $ 122,468 21,867 81,316 89,327 96,902 69,756 20,765 52,565 70,083 $ 454,030 $ 310,071 Years ended December 31, 2021 2020 2019 $ (680,398) $ 613,054 $ (160,189) 4,693 2,647 1,539 $ (675,705) $ 615,701 $ (158,650) Years ended December 31, 2021 2020 2019 21.0 % 21.0 % 21.0 % (35.7) 7.2 4.6 3.1 — (5.4) 1.5 (8.4) (8.4) — 11.0 4.7 (37.1) 6.4 (6.0) 0.2 % 0.3 % 0.0 % Our income (loss) before income taxes by jurisdiction consisted of the following: A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: For the year ended December 31, 2021, we recorded a tax benefit of $1.2 million, consisting of a current tax benefit of $1.7 million and a deferred tax expense of $0.5 million, primarily related to the generation of additional available state research and development tax credits. For the year ended December 31, 2020, we recorded a provision for income taxes of $2.0 million consisting primarily of $3.7 million of current state taxes offset by a net $1.7 million deferred foreign tax benefit primarily related to the release of a valuation allowance on our foreign deferred tax asset for net operating losses. We had existing federal tax carryforwards sufficient to offset any federal tax liability, and we incurred state tax liabilities of $3.7 million due to limitations on the use of existing state carryforwards against taxable income. For the year ended December 31, 2019, we did not record any income tax expense or benefit due to our valuation allowance and tax loss position. As of December 31, 2021, unremitted earnings of our foreign subsidiaries 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. 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 Share-based compensation Allowance and accruals Operating lease liabilities Inventory Capitalized research and development Intangibles and amortization 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 Depreciation Other Net deferred tax assets $ December 31, 2021 2020 331,284 $ 7,566 278,925 41,087 47,119 16,461 14,629 6,947 5,399 749,417 (730,130) 19,287 228,041 8,341 224,233 33,315 29,355 16,596 19,402 4,139 — 563,422 (489,519) 73,903 (13,434) — (3,428) (920) 1,505 $ (13,647) (46,018) (10,215) (1,970) 2,053 $ A valuation allowance of $730.1 million and $489.5 million at December 31, 2021 and 2020, respectively, has been recognized to offset net deferred tax assets where realization of such assets is uncertain. The valuation allowance increased by $240.6 million in 2021, decreased by $46.8 million in 2020, and increased by $58.5 million in 2019, which was mostly related to the changes in our deferred tax asset balances. The 2021 and 2019 increases in the valuation allowance were primarily due to the net operating loss and tax credit generation. The 2020 decrease in the valuation allowance was primarily due to the net operating loss utilization, partially offset by tax credit generation. At December 31, 2021, we had gross federal NOL carryforwards of $1,347 million of which $709 million may be carried forward indefinitely and $638 million expire from 2033 to 2037 if not utilized, gross state NOL carryforwards of $614.4 million, gross foreign NOL carryforwards of $38.3 million, and tax credit carryforwards of $302.4 million expiring from 2022 to 2041. 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, 2020 and believe that it is likely that utilization of its NOLs would not be limited under Section 382 as of December 31, 2020. 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. Unrecognized tax benefits arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of uncertainties. The total amount of unrecognized tax benefit was $30.3 million and $23.1 million as of December 31, 2021 and 2020, respectively. Interest and penalties related to uncertain tax positions, if any, will be recognized as a component of income tax expense. We do not anticipate any significant changes to our unrecognized tax positions or benefits during the next twelve months. Tax years 2001 to 2021 remain subject to future examination for federal, state and foreign income taxes. 108 109 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows: • Outside the U.S., we have commercialization rights in all countries in North and South America, and Astellas (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 10. Collaboration and license agreements Years ended December 31, 2021 2020 2019 $ $ 23,078 $ 1,894 5,334 30,306 $ 24,018 $ (4,008) 3,068 23,078 $ 20,706 — 3,312 24,018 We have collaboration and license agreements with a number of pharmaceutical and biotechnology companies. Revenues recognized under these agreements are disclosed in Note 2. 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 $145.4 million, $99.3 million, and $76.8 million for the years ended December 31, 2021, 2020, and 2019, respectively. 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. We and Astellas launched PADCEV in the U.S. in December 2019. Gross profit share payments owed to Astellas in the U.S. are recorded in cost of sales and totaled $159.0 million and $104.6 million during the years ended December 31, 2021 and 2020, respectively. 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. Astellas or its affiliates are responsible for overseeing the manufacturing supply chain for PADCEV for development and commercial use. However, we are responsible for packaging and labeling in countries in which we sell PADCEV. In addition, if the parties determine that a second source is required, we will be responsible for establishing such second source whether internally or through a third party. Genmab TIVDAK collaboration We have an agreement with Genmab to develop and commercialize ADCs targeting tissue factor, under which we previously exercised a co-development option for TIVDAK. In October 2020, we and Genmab entered into a joint commercialization agreement to govern the global commercialization of TIVDAK. The FDA granted accelerated approval of TIVDAK in September 2021 for the treatment of adult patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy. • In the U.S., we and Genmab co-promote TIVDAK. We record sales of TIVDAK in the U.S. and are responsible for leading U.S. distribution activities. The companies will each hire and maintain 50% of the sales representatives and medical science liaisons, equally share those and certain other costs associated with commercializing TIVDAK in the U.S., and equally share in any profits realized in the U.S. Gross profit share payments owed to Genmab in the U.S. are recorded in cost of sales. • Outside the U.S., we have commercialization rights in the rest of the world except for Japan, where Genmab has commercialization rights. In Europe, China, and Japan, we and Genmab equally share 50% of the costs associated with commercializing TIVDAK as well as any profits realized in these markets. In markets outside the U.S. other than Europe, China, and Japan, aside from certain costs specified in the agreement, we are solely responsible for all costs associated with commercializing TIVDAK and will pay Genmab a royalty based on a percentage of aggregate net sales ranging from the mid-teens to mid-twenties. Costs associated with co-development activities are included in research and development expense and amounted $63.7 million, $50.1 million, and $48.5 million for the years ended December 31, 2021, 2020, and 2019, respectively. 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. 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. The opt out provisions of the collaboration agreement may also be applied to the joint commercialization agreement. In addition, Genmab may elect to opt out of co-promotion of TIVDAK in the U.S. by providing us with prior written notice. Merck LV and TUKYSA license and collaboration agreements, and stock purchase agreement In September 2020, we entered into two license and collaboration agreements, and a stock purchase agreement, with Merck. Under one of the license and collaboration agreements, referred to as the LV Agreement, we are pursuing a broad joint development program evaluating ladiratuzumab vedotin, or LV, as monotherapy and in combination with Merck’s anti-PD-1 therapy KEYTRUDA® (pembrolizumab) in triple-negative breast cancer, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumors. Pursuant to the LV Agreement, we granted to Merck a co-exclusive worldwide development and commercialization license for LV, and agreed to jointly develop and commercialize LV on a worldwide basis. We received an upfront cash payment of $600.0 million, and we are eligible to receive up to $850.0 million in milestone payments upon the initiation of certain clinical trials and regulatory approval in certain major markets, and up to an additional $1.75 billion in milestone payments upon the achievement of specified annual global net sales thresholds of LV. Each company is responsible for 50% of global costs to develop and commercialize LV and will receive 50% of potential future profits. 110 111 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements A reconciliation of the beginning and ending amount of unrecognized tax benefits was 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 10. Collaboration and license agreements Years ended December 31, 2021 2020 2019 $ 23,078 $ 24,018 $ 20,706 1,894 5,334 (4,008) 3,068 $ 30,306 $ 23,078 $ — 3,312 24,018 We have collaboration and license agreements with a number of pharmaceutical and biotechnology companies. Revenues recognized under these agreements are disclosed in Note 2. 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 $145.4 million, $99.3 million, and $76.8 million for the years ended December 31, 2021, 2020, and 2019, respectively. of PADCEV: In 2018, we and Astellas entered into a joint commercialization agreement to govern the global commercialization • 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. We and Astellas launched PADCEV in the U.S. in December 2019. Gross profit share payments owed to Astellas in the U.S. are recorded in cost of sales and totaled $159.0 million and $104.6 million during the years ended December 31, 2021 and 2020, respectively. • 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. Astellas or its affiliates are responsible for overseeing the manufacturing supply chain for PADCEV for development and commercial use. However, we are responsible for packaging and labeling in countries in which we sell PADCEV. In addition, if the parties determine that a second source is required, we will be responsible for establishing such second source whether internally or through a third party. Genmab TIVDAK collaboration We have an agreement with Genmab to develop and commercialize ADCs targeting tissue factor, under which we previously exercised a co-development option for TIVDAK. In October 2020, we and Genmab entered into a joint commercialization agreement to govern the global commercialization of TIVDAK. The FDA granted accelerated approval of TIVDAK in September 2021 for the treatment of adult patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy. • In the U.S., we and Genmab co-promote TIVDAK. We record sales of TIVDAK in the U.S. and are responsible for leading U.S. distribution activities. The companies will each hire and maintain 50% of the sales representatives and medical science liaisons, equally share those and certain other costs associated with commercializing TIVDAK in the U.S., and equally share in any profits realized in the U.S. Gross profit share payments owed to Genmab in the U.S. are recorded in cost of sales. • Outside the U.S., we have commercialization rights in the rest of the world except for Japan, where Genmab has commercialization rights. In Europe, China, and Japan, we and Genmab equally share 50% of the costs associated with commercializing TIVDAK as well as any profits realized in these markets. In markets outside the U.S. other than Europe, China, and Japan, aside from certain costs specified in the agreement, we are solely responsible for all costs associated with commercializing TIVDAK and will pay Genmab a royalty based on a percentage of aggregate net sales ranging from the mid-teens to mid-twenties. Costs associated with co-development activities are included in research and development expense and amounted $63.7 million, $50.1 million, and $48.5 million for the years ended December 31, 2021, 2020, and 2019, respectively. 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. 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. The opt out provisions of the collaboration agreement may also be applied to the joint commercialization agreement. In addition, Genmab may elect to opt out of co-promotion of TIVDAK in the U.S. by providing us with prior written notice. Merck LV and TUKYSA license and collaboration agreements, and stock purchase agreement In September 2020, we entered into two license and collaboration agreements, and a stock purchase agreement, with Merck. Under one of the license and collaboration agreements, referred to as the LV Agreement, we are pursuing a broad joint development program evaluating ladiratuzumab vedotin, or LV, as monotherapy and in combination with Merck’s anti-PD-1 therapy KEYTRUDA® (pembrolizumab) in triple-negative breast cancer, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumors. Pursuant to the LV Agreement, we granted to Merck a co-exclusive worldwide development and commercialization license for LV, and agreed to jointly develop and commercialize LV on a worldwide basis. We received an upfront cash payment of $600.0 million, and we are eligible to receive up to $850.0 million in milestone payments upon the initiation of certain clinical trials and regulatory approval in certain major markets, and up to an additional $1.75 billion in milestone payments upon the achievement of specified annual global net sales thresholds of LV. Each company is responsible for 50% of global costs to develop and commercialize LV and will receive 50% of potential future profits. 110 111 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements In connection with the LV Agreement, we entered into a stock purchase agreement with Merck, referred to as the Purchase Agreement, pursuant to which we agreed to issue and sell, and Merck agreed to purchase 5,000,000 newly issued shares of our common stock, at a purchase price of $200 per share, for an aggregate purchase price of $1.0 billion. Under the other license and collaboration agreement, referred to as the TUKYSA Agreement, we granted Merck exclusive rights to commercialize TUKYSA in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe. Pursuant to the TUKYSA Agreement, Merck is responsible for marketing applications for approval in its territory, supported by the positive results from the HER2CLIMB clinical trial. We retained commercial rights in the U.S., Canada and Europe, where we will record sales. Merck is also co-funding a portion of the TUKYSA global development plan, which encompasses several ongoing and planned trials across HER2-positive cancers. We will continue to lead ongoing TUKYSA global development operational execution. Merck will solely fund and conduct country-specific clinical trials necessary to support anticipated regulatory applications in its territories. We received an upfront cash payment from Merck of $125.0 million and also received $85.0 million in prepaid research and development funding to be applied to Merck’s global development cost sharing obligations. We are eligible to receive progress-dependent milestone payments of up to $65.0 million, and are entitled to receive tiered royalties on sales of TUKYSA by Merck that begin in the low twenty percent range and escalate based sales volume by Merck in its territory. We owe a portion of any non-royalty payments received from sublicensing TUKYSA rights to a technology licensor, as well as a low double-digit royalty based on net sales of TUKYSA by us, and will owe a single-digit royalty based on net sales of TUKYSA by Merck in its territories. We determined that these agreements are within the scope of ASC 808. Pursuant to ASC 808, we considered other treating locally advanced metastatic gastric cancer in China, and in July 2021 the National Medical Products authoritative guidance for distinct units of account related to these agreements, including ASC 606. Our performance obligations within the scope of ASC 606 consisted of the delivery of the LV license and transfer of regulatory information to enable the LV collaboration, the delivery of the TUKYSA license and transfer of regulatory materials for use by Merck in its territory, and supply of commercial TUKYSA inventory to Merck for use in its territory. The LV license and TUKYSA license are functional intellectual property and distinct from the other promises made under the contract. Since we also determined that Merck can benefit from the LV license and the TUKYSA licenses at the time of conveyance, the related performance obligations were satisfied at that point in time. Therefore, we recognized the license revenue under ASC 606 of $725.0 million in collaboration and license agreement revenues during the year ended December 31, 2020. Potential development, regulatory, and sales-based milestones, and royalties, will be accounted for as variable transaction price related to the LV or TUKYSA licenses under ASC 606. Given the uncertain nature of these payments, we determined they were fully constrained upon entering the agreements and not included in the transaction price. We will re-evaluate the transaction price at each reporting period and as uncertain events are resolved or other changes in circumstances occur. We and Merck will share equally in LV global development costs and profits, if any, and Merck is co-funding a portion of the TUKYSA global development plan. We consider the collaborative activities associated with the global development and commercialization of LV, and the global development of TUKYSA, to be units of account within the scope of ASC 808. We recognize development cost sharing proportionately with the performance of the underlying activities, and record Merck’s reimbursement of our expenses as a reduction of research and development expenses. Reimbursements from Merck for the LV Agreement and TUKYSA Agreement were not material during the year ended December 31, 2020. Merck’s prepayment of $85.0 million towards the TUKYSA global development plan was recorded as a co-development liability in other long-term liabilities on our consolidated balance sheet as of December 31, 2020. As joint development expenses are incurred, we recognize the portion of Merck’s prepayment as a reduction of our research and development expenses on our consolidated statements of comprehensive income (loss). As of December 31, 2021, $40.2 million and $15.1 million was recorded as the remaining co-development liability in accrued liabilities and other long-term liabilities, respectively. As of December 31, 2020, $30.1 million and $50.8 million was recorded as the remaining co-development liability in accrued liabilities and other long-term liabilities, respectively. Sales of TUKYSA drug product supplied to Merck were included in collaboration and license agreement revenues. The fair market value of 5,000,000 shares of our common stock was $749.9 million, based on the closing price of the last trading day prior to the Purchase Agreement being executed. We accounted for the associated premium of $250.1 million as a freestanding equity-linked instrument under ASC 815. The premium was determined to be variable consideration in the calculation of the total transaction price related to the LV license, and was initially recorded in deferred revenue due to the substantive contingency associated with closing of the sale of shares under the Purchase Agreement. The closing of the sale of the shares pursuant to the Purchase Agreement occurred in October 2020. Upon closing, we recorded the fair market value of the shares issued in stockholders’ equity on our consolidated balance sheet. The variable consideration restraint was removed upon the closing of the sale of shares pursuant to the Purchase Agreement, and the premium was recognized in collaboration and license agreement revenues in the quarter and year ended December 31, 2020. RemeGen license agreement In September 2021, we and RemeGen Co., Ltd., or RemeGen, entered into an exclusive worldwide licensing agreement to develop and commercialize disitamab vedotin, a novel HER2-targeted ADC. Disitamab vedotin combines the drug-linker technology originally developed by us with RemeGen’s novel HER2 antibody. Disitamab vedotin received FDA Breakthrough Therapy designation in 2020 for use in second-line treatment of patients with HER2- expressing, locally advanced or metastatic urothelial cancer who have previously received platinum-containing chemotherapy. Also in 2020, RemeGen announced FDA’s clearance of an Investigational New Drug application for a phase 2clinical trial in locally advanced or metastatic urothelial cancer. Disitamab vedotin is conditionally approved for Administration of China also accepted a New Drug Application for disitamab vedotin in locally advanced or metastatic urothelial cancer. Under the terms of the agreement, we obtained exclusive license rights to disitamab vedotin for global development and commercialization outside of RemeGen’s territory for an upfront payment of $200.0 million. The license was accounted for as an asset acquisition and the upfront payment was included in research and development expenses for the year ended December 31, 2021. RemeGen retains development and commercialization rights for Asia, excluding Japan and Singapore. We will lead global development and RemeGen will fund and operationalize the portion of global clinical trials attributable to its territory. RemeGen will also be responsible for all clinical development and regulatory submissions specific to its territory. We will pay RemeGen up to $195.0 million in potential milestone payments across multiple indications and products based upon the achievement of specified development goals, and up to $2.2 billion in potential milestone payments based on the achievement of specified regulatory and commercialization goals. RemeGen will be entitled to a tiered, high single digit to mid-teen percentage royalty based on net sales of disitamab vedotin in our territory. Other collaboration and license agreements We have other collaboration and license agreements for our technology with a number of biotechnology and pharmaceutical companies. Under these agreements, 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. For agreements beyond the initial performance period, we have no remaining performance obligations. We may receive license maintenance fees and potential milestones and royalties based on collaborator development and regulatory progress, which are recorded in the period achieved in the case of milestones, and during the period of the related sales for royalties. 112 113 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements In connection with the LV Agreement, we entered into a stock purchase agreement with Merck, referred to as the Purchase Agreement, pursuant to which we agreed to issue and sell, and Merck agreed to purchase 5,000,000 newly issued shares of our common stock, at a purchase price of $200 per share, for an aggregate purchase price of $1.0 billion. Under the other license and collaboration agreement, referred to as the TUKYSA Agreement, we granted Merck exclusive rights to commercialize TUKYSA in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe. Pursuant to the TUKYSA Agreement, Merck is responsible for marketing applications for approval in its territory, supported by the positive results from the HER2CLIMB clinical trial. We retained commercial rights in the U.S., Canada and Europe, where we will record sales. Merck is also co-funding a portion of the TUKYSA global development plan, which encompasses several ongoing and planned trials across HER2-positive cancers. We will continue to lead ongoing TUKYSA global development operational execution. Merck will solely fund and conduct country-specific clinical trials necessary to support anticipated regulatory applications in its territories. We received an upfront cash payment from Merck of $125.0 million and also received $85.0 million in prepaid research and development funding to be applied to Merck’s global development cost sharing obligations. We are eligible to receive progress-dependent milestone payments of up to $65.0 million, and are entitled to receive tiered royalties on sales of TUKYSA by Merck that begin in the low twenty percent range and escalate based sales volume by Merck in its territory. We owe a portion of any non-royalty payments received from sublicensing TUKYSA rights to a technology licensor, as well as a low double-digit royalty based on net sales of TUKYSA by us, and will owe a single-digit royalty based on net sales of TUKYSA by Merck in its territories. We determined that these agreements are within the scope of ASC 808. Pursuant to ASC 808, we considered other authoritative guidance for distinct units of account related to these agreements, including ASC 606. Our performance obligations within the scope of ASC 606 consisted of the delivery of the LV license and transfer of regulatory information to enable the LV collaboration, the delivery of the TUKYSA license and transfer of regulatory materials for use by Merck in its territory, and supply of commercial TUKYSA inventory to Merck for use in its territory. The LV license and TUKYSA license are functional intellectual property and distinct from the other promises made under the contract. Since we also determined that Merck can benefit from the LV license and the TUKYSA licenses at the time of conveyance, the related performance obligations were satisfied at that point in time. Therefore, we recognized the license revenue under ASC 606 of $725.0 million in collaboration and license agreement revenues during the year ended December 31, 2020. circumstances occur. Potential development, regulatory, and sales-based milestones, and royalties, will be accounted for as variable transaction price related to the LV or TUKYSA licenses under ASC 606. Given the uncertain nature of these payments, we determined they were fully constrained upon entering the agreements and not included in the transaction price. We will re-evaluate the transaction price at each reporting period and as uncertain events are resolved or other changes in We and Merck will share equally in LV global development costs and profits, if any, and Merck is co-funding a portion of the TUKYSA global development plan. We consider the collaborative activities associated with the global development and commercialization of LV, and the global development of TUKYSA, to be units of account within the scope of ASC 808. We recognize development cost sharing proportionately with the performance of the underlying activities, and record Merck’s reimbursement of our expenses as a reduction of research and development expenses. Reimbursements from Merck for the LV Agreement and TUKYSA Agreement were not material during the year ended December 31, 2020. Merck’s prepayment of $85.0 million towards the TUKYSA global development plan was recorded as a co-development liability in other long-term liabilities on our consolidated balance sheet as of December 31, 2020. As joint development expenses are incurred, we recognize the portion of Merck’s prepayment as a reduction of our research and development expenses on our consolidated statements of comprehensive income (loss). As of December 31, 2021, $40.2 million and $15.1 million was recorded as the remaining co-development liability in accrued liabilities and other long-term liabilities, respectively. As of December 31, 2020, $30.1 million and $50.8 million was recorded as the remaining co-development liability in accrued liabilities and other long-term liabilities, respectively. Sales of TUKYSA drug product supplied to Merck were included in collaboration and license agreement revenues. The fair market value of 5,000,000 shares of our common stock was $749.9 million, based on the closing price of the last trading day prior to the Purchase Agreement being executed. We accounted for the associated premium of $250.1 million as a freestanding equity-linked instrument under ASC 815. The premium was determined to be variable consideration in the calculation of the total transaction price related to the LV license, and was initially recorded in deferred revenue due to the substantive contingency associated with closing of the sale of shares under the Purchase Agreement. The closing of the sale of the shares pursuant to the Purchase Agreement occurred in October 2020. Upon closing, we recorded the fair market value of the shares issued in stockholders’ equity on our consolidated balance sheet. The variable consideration restraint was removed upon the closing of the sale of shares pursuant to the Purchase Agreement, and the premium was recognized in collaboration and license agreement revenues in the quarter and year ended December 31, 2020. RemeGen license agreement In September 2021, we and RemeGen Co., Ltd., or RemeGen, entered into an exclusive worldwide licensing agreement to develop and commercialize disitamab vedotin, a novel HER2-targeted ADC. Disitamab vedotin combines the drug-linker technology originally developed by us with RemeGen’s novel HER2 antibody. Disitamab vedotin received FDA Breakthrough Therapy designation in 2020 for use in second-line treatment of patients with HER2- expressing, locally advanced or metastatic urothelial cancer who have previously received platinum-containing chemotherapy. Also in 2020, RemeGen announced FDA’s clearance of an Investigational New Drug application for a phase 2clinical trial in locally advanced or metastatic urothelial cancer. Disitamab vedotin is conditionally approved for treating locally advanced metastatic gastric cancer in China, and in July 2021 the National Medical Products Administration of China also accepted a New Drug Application for disitamab vedotin in locally advanced or metastatic urothelial cancer. Under the terms of the agreement, we obtained exclusive license rights to disitamab vedotin for global development and commercialization outside of RemeGen’s territory for an upfront payment of $200.0 million. The license was accounted for as an asset acquisition and the upfront payment was included in research and development expenses for the year ended December 31, 2021. RemeGen retains development and commercialization rights for Asia, excluding Japan and Singapore. We will lead global development and RemeGen will fund and operationalize the portion of global clinical trials attributable to its territory. RemeGen will also be responsible for all clinical development and regulatory submissions specific to its territory. We will pay RemeGen up to $195.0 million in potential milestone payments across multiple indications and products based upon the achievement of specified development goals, and up to $2.2 billion in potential milestone payments based on the achievement of specified regulatory and commercialization goals. RemeGen will be entitled to a tiered, high single digit to mid-teen percentage royalty based on net sales of disitamab vedotin in our territory. Other collaboration and license agreements We have other collaboration and license agreements for our technology with a number of biotechnology and pharmaceutical companies. Under these agreements, 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. For agreements beyond the initial performance period, we have no remaining performance obligations. We may receive license maintenance fees and potential milestones and royalties based on collaborator development and regulatory progress, which are recorded in the period achieved in the case of milestones, and during the period of the related sales for royalties. 112 113 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements 11. 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. We would potentially owe development, regulatory, and sales-based milestones, and royalties on net sales, as defined, of certain approved products. We were required to pay royalties in the low single digits on net sales of ADCETRIS under the terms of two exclusive license agreements, which expired in 2021. We are a party to a license agreement in which we were granted an exclusive license to develop, manufacture and commercialize TUKYSA. We pay the licensor a portion of any non-royalty payments received from sublicensing TUKYSA rights, a low double-digit royalty based on net sales of TUKYSA by us, and a single-digit royalty based on net sales of TUKYSA 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 TUKYSA within that country or 10 years after the first commercial sale of TUKYSA within that country. 12. Commitments and contingencies We have certain non-cancelable obligations under various agreements, including supply agreements relating to the manufacture of our commercial products, and our product candidates that contain annual minimum purchase commitments and other firm commitments when a binding forecast is provided. As of December 31, 2021, our future obligations related to supply and other agreements were as follows: (dollars in thousands) Years ending December 31, 2022 2023 2024 2025 2026 Thereafter Total $ $ 204,328 89,460 62,686 33,016 6,513 — 396,003 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. 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. See Note 3 for our future obligations related to operating leases as of December 31, 2021. At December 31, 2021, shares of common stock reserved for future issuance are as follows: 13. Legal matters We are engaged in multiple legal disputes with Daiichi Sankyo Co. Ltd., or Daiichi Sankyo. Dispute over ownership of intellectual property We are in a dispute with Daiichi Sankyo regarding the ownership of certain technology used by Daiichi Sankyo in its cancer drug ENHERTU and certain product candidates. We believe that the linker and other ADC technology used in ENHERTU and 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 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. On April 27, 2020, the arbitrator confirmed the dispute should be resolved in arbitration. The arbitration hearing was conducted in June 2021. Recently, the arbitration hearing record was reopened by the arbitrator to consider additional evidence. As a result, the decision may occur after the first quarter of 2022. 114 115 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, in an attempt to have the dispute adjudicated in federal court. The case has been stayed and administratively closed by court order. Patent infringement On October 19, 2020, we filed a complaint in the United States District Court for the Eastern District of Texas to commence an action for infringement of our U.S. Patent No. 10,808,039, or the '039 Patent, by Daiichi Sankyo’s importation into, offer for sale, sale, and use in the United States of the cancer drug ENHERTU. This action is seeking, among other remedies, a judgment that Daiichi Sankyo infringed one or more valid and enforceable claims of the '039 Patent, monetary damages and a running royalty. Daiichi Sankyo (as well as Daiichi Sankyo, Inc. and AstraZeneca Pharmaceuticals, LP, or AstraZeneca) subsequently filed an action on November 13, 2020 in the U.S. District Court for the District of Delaware seeking a declaratory judgment that ENHERTU does not infringe the ‘039 Patent. The Delaware action has been stayed by court order. Daiichi Sankyo, Inc. and AstraZeneca also filed two Petitions for Post-Grant Review on December 23, 2020 and January 22, 2021 with the U.S. Patent Office seeking to have claims of the ‘039 Patent cancelled as unpatentable. On June 24, 2021, the U.S. Patent Office issued a decision denying both Petitions for Post-Grant Review. The trial in the patent infringement case in Texas is scheduled to begin on April 4, 2022. As a result of these disputes, we have incurred and will continue to incur litigation expenses. In addition, from time to time, we may become involved in other 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, and they may subject us to claims which may result in liabilities or require us to take or refrain from certain actions. 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. 14. Stockholders’ equity In October 2020, we closed the sale of the shares pursuant to the Purchase Agreement, and issued 5,000,000 shares of our common stock to Merck at a purchase price of $200 per share, for proceeds of $1.0 billion. As a result, we recorded $749.9 million in stockholders’ equity on our consolidated balance sheet and recognized the $250.1 million premium attributed to the Purchase Agreement in collaboration and license agreement revenues for the year ended December 31, 2020. (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 10,535 6,673 840 18,048 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements 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, in an attempt to have the dispute adjudicated in federal court. The case has been stayed and administratively closed by court order. Patent infringement On October 19, 2020, we filed a complaint in the United States District Court for the Eastern District of Texas to commence an action for infringement of our U.S. Patent No. 10,808,039, or the '039 Patent, by Daiichi Sankyo’s importation into, offer for sale, sale, and use in the United States of the cancer drug ENHERTU. This action is seeking, among other remedies, a judgment that Daiichi Sankyo infringed one or more valid and enforceable claims of the '039 Patent, monetary damages and a running royalty. Daiichi Sankyo (as well as Daiichi Sankyo, Inc. and AstraZeneca Pharmaceuticals, LP, or AstraZeneca) subsequently filed an action on November 13, 2020 in the U.S. District Court for the District of Delaware seeking a declaratory judgment that ENHERTU does not infringe the ‘039 Patent. The Delaware action has been stayed by court order. Daiichi Sankyo, Inc. and AstraZeneca also filed two Petitions for Post-Grant Review on December 23, 2020 and January 22, 2021 with the U.S. Patent Office seeking to have claims of the ‘039 Patent cancelled as unpatentable. On June 24, 2021, the U.S. Patent Office issued a decision denying both Petitions for Post-Grant Review. The trial in the patent infringement case in Texas is scheduled to begin on April 4, 2022. As a result of these disputes, we have incurred and will continue to incur litigation expenses. In addition, from time to time, we may become involved in other 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, and they may subject us to claims which may result in liabilities or require us to take or refrain from certain actions. 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. 14. Stockholders’ equity In October 2020, we closed the sale of the shares pursuant to the Purchase Agreement, and issued 5,000,000 shares of our common stock to Merck at a purchase price of $200 per share, for proceeds of $1.0 billion. As a result, we recorded $749.9 million in stockholders’ equity on our consolidated balance sheet and recognized the $250.1 million premium attributed to the Purchase Agreement in collaboration and license agreement revenues for the year ended December 31, 2020. 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. 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. See Note 3 for our future obligations related to operating leases as of December 31, 2021. At December 31, 2021, 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 10,535 6,673 840 18,048 11. 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. We would potentially owe development, regulatory, and sales-based milestones, and royalties on net sales, as defined, of certain approved products. We were required to pay royalties in the low single digits on net sales of ADCETRIS under the terms of two exclusive license agreements, which expired in 2021. We are a party to a license agreement in which we were granted an exclusive license to develop, manufacture and commercialize TUKYSA. We pay the licensor a portion of any non-royalty payments received from sublicensing TUKYSA rights, a low double-digit royalty based on net sales of TUKYSA by us, and a single-digit royalty based on net sales of TUKYSA 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 TUKYSA within that country or 10 years after the first commercial sale of TUKYSA within that country. 12. Commitments and contingencies We have certain non-cancelable obligations under various agreements, including supply agreements relating to the manufacture of our commercial products, and our product candidates that contain annual minimum purchase commitments and other firm commitments when a binding forecast is provided. As of December 31, 2021, our future obligations related to supply and other agreements were as follows: (dollars in thousands) Years ending December 31, 2022 2023 2024 2025 2026 Thereafter Total $ 204,328 89,460 62,686 33,016 6,513 — $ 396,003 13. Legal matters We are engaged in multiple legal disputes with Daiichi Sankyo Co. Ltd., or Daiichi Sankyo. Dispute over ownership of intellectual property We are in a dispute with Daiichi Sankyo regarding the ownership of certain technology used by Daiichi Sankyo in its cancer drug ENHERTU and certain product candidates. We believe that the linker and other ADC technology used in ENHERTU and 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 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. On April 27, 2020, the arbitrator confirmed the dispute should be resolved in arbitration. The arbitration hearing was conducted in June 2021. Recently, the arbitration hearing record was reopened by the arbitrator to consider additional evidence. As a result, the decision may occur after the first quarter of 2022. 114 115 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements 15. Net (loss) income per share Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include incremental common shares issuable upon the vesting of unvested restricted stock units and the exercise of outstanding stock options, calculated using the treasury stock method. (dollars in thousands, except per share amounts) Net (loss) income Weighted average common shares outstanding - basic Effect of potentially dilutive common shares Weighted average common shares outstanding - diluted Net (loss) income per share - basic Net (loss) income per share - diluted Years ended December 31, 2021 (674,471) $ 2020 613,670 $ 2019 (158,650) $ 182,048 — 182,048 174,834 7,453 182,287 165,498 — 165,498 $ $ (3.70) $ (3.70) $ 3.51 $ 3.37 $ (0.96) (0.96) We excluded the potential shares of common stock from the computation of diluted net income (loss) per share because their effect would have been antidilutive. The following table presents the weighted average number of shares that have been excluded for all periods presented: (in thousands) Stock options and RSUs 16. Share-based compensation 2007 Equity Incentive Plan Years ended December 31, 2021 2020 2019 10,327 356 12,774 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 2020 to reserve an additional 6,000,000 shares thereunder, such that an aggregate of 39,000,000 shares of our common stock were authorized for issuance as of December 31, 2021, and to extend the term of the 2007 Plan through May 2030 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 The following table presents our total share-based compensation expense for the periods presented: connection with the change in control. Share-based compensation expense (dollars in thousands) Research and development Selling, general and administrative Total share-based compensation expense Years ended December 31, 2021 2020 $ 79,715 $ 72,749 $ 93,402 173,117 74,484 147,233 2019 64,730 62,619 127,349 No tax benefit was recognized for the years ended December 31, 2021 and 2019 since there is no taxable income for those years and a valuation allowance is available to offset all potential tax benefits associated with its deferred tax assets. We recognized a tax benefit of $55.7 million related to share-based compensation expense for 2020. 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: Risk-free interest rate Expected lives (in years) Expected dividend Expected volatility 2007 Plan Years ended December 31, Employee Stock Purchase Plan Years ended December 31, 2021 2020 2019 2021 2020 2019 0.8 % 0.3 % 1.5 % 0.1 % 1.3 % 2.2 % 5.7 0 % 44 % 5.7 0 % 44 % 5.6 0 % 44 % 0.5 0 % 44 % 0.5 0 % 47 % 0.5 0 % 43 % 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. 116 117 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements 15. Net (loss) income per share Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include incremental common shares issuable upon the vesting of unvested restricted stock units and the exercise of outstanding stock options, calculated using the treasury stock method. (dollars in thousands, except per share amounts) Net (loss) income Weighted average common shares outstanding - basic Effect of potentially dilutive common shares Weighted average common shares outstanding - diluted Net (loss) income per share - basic Net (loss) income per share - diluted (in thousands) Stock options and RSUs 16. Share-based compensation 2007 Equity Incentive Plan Years ended December 31, 2021 2020 2019 $ (674,471) $ 613,670 $ (158,650) 182,048 — 182,048 174,834 7,453 182,287 165,498 — 165,498 $ $ (3.70) $ (3.70) $ 3.51 $ 3.37 $ (0.96) (0.96) Years ended December 31, 2021 2020 2019 10,327 356 12,774 We excluded the potential shares of common stock from the computation of diluted net income (loss) per share because their effect would have been antidilutive. The following table presents the weighted average number of shares that have been excluded for all periods presented: 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 2020 to reserve an additional 6,000,000 shares thereunder, such that an aggregate of 39,000,000 shares of our common stock were authorized for issuance as of December 31, 2021, and to extend the term of the 2007 Plan through May 2030 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. Share-based compensation expense The following table presents our total share-based compensation expense for the periods presented: (dollars in thousands) Research and development Selling, general and administrative Total share-based compensation expense Years ended December 31, 2021 2020 $ 79,715 $ 93,402 173,117 72,749 $ 74,484 147,233 2019 64,730 62,619 127,349 No tax benefit was recognized for the years ended December 31, 2021 and 2019 since there is no taxable income for those years and a valuation allowance is available to offset all potential tax benefits associated with its deferred tax assets. We recognized a tax benefit of $55.7 million related to share-based compensation expense for 2020. 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: Risk-free interest rate Expected lives (in years) Expected dividend Expected volatility 2007 Plan Years ended December 31, Employee Stock Purchase Plan Years ended December 31, 2021 2020 2019 2021 2020 2019 0.8 % 0.3 % 1.5 % 0.1 % 1.3 % 2.2 % 5.7 0 % 44 % 5.7 0 % 44 % 5.6 0 % 44 % 0.5 0 % 44 % 0.5 0 % 47 % 0.5 0 % 43 % 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. 116 117 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements During 2020, an LTIP milestone was achieved related to FDA approval of TUKYSA, which triggered vesting of performance-based stock awards previously granted to eligible participants, and an RSU grant to eligible participants. The vesting of the previously granted performance-based stock awards related to this LTIP is included in the table below. The second tranche grant upon milestone achievement and time-based vesting of these awards is included in the "RSU activity" table above. During 2019, an LTIP milestone was achieved related to the FDA approval of PADCEV, 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 time-based and is included in the “RSU activity” table above. A summary of activity related to our performance-based RSUs and LTIPs is as follows: Share equivalent Weighted- average grant date fair value 678,406 $ 202,293 $ (31) $ (77,947) $ 802,721 $ 128.96 161.90 136.87 127.82 136.10 Non-vested at December 31, 2020 Granted Vested Forfeited Non-vested at December 31, 2021 based awards was approximately $83 million. Employee Stock Purchase Plan As of December 31, 2021, the estimated unrecognized compensation cost related to all LTIPs and performance- 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. 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. 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. 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 $24.8 million in 2021, $18.0 million in 2020, and $11.9 million in 2019. Stock option activity A summary of stock option activity is as follows: Balance at December 31, 2020 Granted Exercised Forfeited/expired Balance at December 31, 2021 Expected to vest Options exercisable Weighted- average exercise price per share Weighted- average remaining contractual term (in years) Aggregate intrinsic value (in thousands) 5.98 $ 5.89 $ 4.82 $ 561,783 558,941 496,438 62.60 156.07 41.47 107.48 79.53 77.71 56.86 Shares 7,881,259 $ 1,135,689 $ (1,398,901) $ (243,593) $ 7,374,454 $ 7,171,594 $ 5,057,083 $ The weighted average grant-date fair values of options granted with exercise prices equal to market were $64.22, $64.66, and $30.51 for the years ended December 31, 2021, 2020, and 2019, respectively. 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, 2021. The aggregate intrinsic value of options exercised was $168.7 million during 2021, $271.0 million during 2020, and $128.4 million during 2019, determined as of the date of option exercise. As of December 31, 2021, there was approximately $64.6 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 1.30 years. We utilize newly issued shares to satisfy option exercises. RSU activity A summary of RSU activity, excluding performance-based RSUs and LTIPs, is as follows: Non-vested at December 31, 2020 Granted Vested Forfeited Non-vested at December 31, 2021 Share equivalent 2,357,506 $ 1,180,665 $ (934,049) $ (245,861) $ 2,358,261 $ Weighted- average grant date fair value 105.50 157.45 93.61 117.01 135.07 The weighted average grant-date fair values of RSUs granted were $157.45, $159.51, and $75.58 for the years ended December 31, 2021, 2020, and 2019, respectively. The total fair value of RSUs that vested during 2021, 2020, and 2019 (measured on the date of vesting) was $149.8 million, $187.1 million, and $67.1 million, respectively. As of December 31, 2021, there was approximately $110.4 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 1.71 years. We utilize newly issued shares for RSUs that vest. LTIP, performance-based and market-based awards activity We have various LTIPs, which contain performance-based equity compensation, and have granted other performance-based and market-based awards to certain senior leadership. During 2021, an LTIP milestone was achieved related to FDA approval of TIVDAK, which triggered a cash payment and an RSU grant to eligible participants. The vesting of grants made under that LTIP is time-based and is included in the “RSU activity” table above. 118 119 Seagen Inc. Notes to Consolidated Financial Statements Seagen Inc. Notes to Consolidated Financial Statements Stock option activity A summary of stock option activity is as follows: Balance at December 31, 2020 Granted Exercised Forfeited/expired Balance at December 31, 2021 Expected to vest Options exercisable Weighted- average Weighted- average remaining exercise price contractual term per share (in years) Aggregate intrinsic value (in thousands) Shares 7,881,259 $ 1,135,689 $ (1,398,901) $ (243,593) $ 7,374,454 $ 7,171,594 $ 5,057,083 $ 62.60 156.07 41.47 107.48 79.53 77.71 56.86 5.98 $ 5.89 $ 4.82 $ 561,783 558,941 496,438 The weighted average grant-date fair values of options granted with exercise prices equal to market were $64.22, $64.66, and $30.51 for the years ended December 31, 2021, 2020, and 2019, respectively. 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, 2021. The aggregate intrinsic value of options exercised was $168.7 million during 2021, $271.0 million during 2020, and $128.4 million during 2019, determined as of the date of option exercise. As of December 31, 2021, there was approximately $64.6 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 1.30 years. We utilize newly issued shares to satisfy option exercises. RSU activity A summary of RSU activity, excluding performance-based RSUs and LTIPs, is as follows: Non-vested at December 31, 2020 Granted Vested Forfeited Non-vested at December 31, 2021 Share equivalent 2,357,506 $ 1,180,665 $ (934,049) $ (245,861) $ 2,358,261 $ Weighted- average grant date fair value 105.50 157.45 93.61 117.01 135.07 The weighted average grant-date fair values of RSUs granted were $157.45, $159.51, and $75.58 for the years ended December 31, 2021, 2020, and 2019, respectively. The total fair value of RSUs that vested during 2021, 2020, and 2019 (measured on the date of vesting) was $149.8 million, $187.1 million, and $67.1 million, respectively. As of December 31, 2021, there was approximately $110.4 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 1.71 years. We utilize newly issued shares for RSUs that vest. LTIP, performance-based and market-based awards activity We have various LTIPs, which contain performance-based equity compensation, and have granted other performance-based and market-based awards to certain senior leadership. During 2021, an LTIP milestone was achieved related to FDA approval of TIVDAK, which triggered a cash payment and an RSU grant to eligible participants. The vesting of grants made under that LTIP is time-based and is included in the “RSU activity” table above. During 2020, an LTIP milestone was achieved related to FDA approval of TUKYSA, which triggered vesting of performance-based stock awards previously granted to eligible participants, and an RSU grant to eligible participants. The vesting of the previously granted performance-based stock awards related to this LTIP is included in the table below. The second tranche grant upon milestone achievement and time-based vesting of these awards is included in the "RSU activity" table above. During 2019, an LTIP milestone was achieved related to the FDA approval of PADCEV, 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 time-based and is included in the “RSU activity” table above. A summary of activity related to our performance-based RSUs and LTIPs is as follows: Non-vested at December 31, 2020 Granted Vested Forfeited Non-vested at December 31, 2021 Share equivalent Weighted- average grant date fair value 678,406 $ 202,293 $ (31) $ (77,947) $ 802,721 $ 128.96 161.90 136.87 127.82 136.10 As of December 31, 2021, the estimated unrecognized compensation cost related to all LTIPs and performance- based awards was approximately $83 million. 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. 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. 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. 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 $24.8 million in 2021, $18.0 million in 2020, and $11.9 million in 2019. 118 119 With respect to all of our Executive Officers, including Dr. Siegall, their employment agreements were amended to increase the change of control protection period from 12 months after a change of control to 3 months prior to and 18 months after a change of control and to update the related change of control provisions in such agreements. The foregoing is only a brief description of certain terms of the Amended Employment Agreements, including the Amended Siegall Employment Agreement, does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended Employment Agreements, including the Amended Siegall Employment Agreement, which are filed as Exhibits 10.52 to 10.57 to this annual report on Form 10-K. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 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, 2021 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, 2021. The effectiveness of our internal control over financial reporting as of December 31, 2021 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 On February 9, 2022, following the approval of the Compensation Committee of our Board of Directors, we entered into an amended and restated employment agreement, or an Amended Employment Agreement, with each of our executive officers, including Clay Siegall, our President and Chief Executive Officer, Todd Simpson, our Chief Financial Officer, Roger Dansey, our Chief Medical Officer, Vaughn Himes, our Chief Technical Officer, Jean Liu, our Chief Legal Officer, and Charles Romp, our Executive Vice President, Commercial U.S., or our Executive Officers. The Amended Employment Agreement with Dr. Siegall, or the Amended Siegall Employment Agreement, amends and restates the employment agreement that we previously entered into with Dr. Siegall. Provisions that were amended include, among other things: • • In the event his employment is constructively terminated or terminated by us without cause, the period to receive payment of COBRA health insurance premiums and the period of vesting acceleration for his outstanding equity awards were increased from 12 months to 18 months. In the event his employment is constructively terminated or terminated by us without cause within 3 months prior to or 18 months after a change of control of Seagen, (i) his cash severance period was increased from 24 to 36 months, (ii) his bonus payment was increased from a payment equal to his annual target bonus multiplied by 2 to a payment equal to his annual target bonus multiplied by 3 (the payment of a pro-rated portion of his annual target bonus for the year of his termination remains unchanged) and (iii) the period to receive payment of COBRA health insurance premiums was increased from 24 months to 36 months. 120 121 With respect to all of our Executive Officers, including Dr. Siegall, their employment agreements were amended to increase the change of control protection period from 12 months after a change of control to 3 months prior to and 18 months after a change of control and to update the related change of control provisions in such agreements. The foregoing is only a brief description of certain terms of the Amended Employment Agreements, including the Amended Siegall Employment Agreement, does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended Employment Agreements, including the Amended Siegall Employment Agreement, which are filed as Exhibits 10.52 to 10.57 to this annual report on Form 10-K. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 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, 2021 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, 2021. The effectiveness of our internal control over financial reporting as of December 31, 2021 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 On February 9, 2022, following the approval of the Compensation Committee of our Board of Directors, we entered into an amended and restated employment agreement, or an Amended Employment Agreement, with each of our executive officers, including Clay Siegall, our President and Chief Executive Officer, Todd Simpson, our Chief Financial Officer, Roger Dansey, our Chief Medical Officer, Vaughn Himes, our Chief Technical Officer, Jean Liu, our Chief Legal Officer, and Charles Romp, our Executive Vice President, Commercial U.S., or our Executive Officers. The Amended Employment Agreement with Dr. Siegall, or the Amended Siegall Employment Agreement, amends and restates the employment agreement that we previously entered into with Dr. Siegall. Provisions that were amended include, among other things: • In the event his employment is constructively terminated or terminated by us without cause, the period to receive payment of COBRA health insurance premiums and the period of vesting acceleration for his outstanding equity awards were increased from 12 months to 18 months. • In the event his employment is constructively terminated or terminated by us without cause within 3 months prior to or 18 months after a change of control of Seagen, (i) his cash severance period was increased from 24 to 36 months, (ii) his bonus payment was increased from a payment equal to his annual target bonus multiplied by 2 to a payment equal to his annual target bonus multiplied by 3 (the payment of a pro-rated portion of his annual target bonus for the year of his termination remains unchanged) and (iii) the period to receive payment of COBRA health insurance premiums was increased from 24 months to 36 months. 120 121 PART III PART IV 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 2021 fiscal year pursuant to Regulation 14A for our 2022 Annual Meeting of Stockholders, or the 2022 Proxy Statement, and the information to be included in the 2022 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 2022 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 2022 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 “Proposal No. 2 – Advisory Vote on Executive Compensation—Compensation of Executive Officers” appearing in the 2022 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 2022 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 2022 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 2022 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 2022 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. 3—Ratification of Appointment of Independent Registered Public Accounting Firm” appearing in the 2022 Proxy Statement. Such information is incorporated herein by reference. Item 15. Exhibits, Financial Statement Schedules 1. The following documents are filed as part of this report: 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†† Fourth Amended and Restated Certificate of Incorporation 10-Q 000-32405 11/7/2008 Amended and Restated Bylaws of Seagen Inc. (f.k.a. 8-K 000-32405 1/16/2020 Exhibit Description License Agreement dated as of August 8, 2021 between RemeGen Co. Ltd. and Seagen Inc. of Seagen Inc. (f.k.a. Seattle Genetics, Inc.). Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of Seagen Inc. (f.k.a. Seattle Genetics, Inc.). Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of Seagen Inc. (f.k.a Seattle Genetics, Inc.). Seattle Genetics, Inc.). Description of Securities of Seagen Inc. Specimen Stock Certificate. Investor Rights Agreement dated July 8, 2003 among Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and certain of its stockholders. Registration Rights Agreement, dated September 10, 2015, by and between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and the persons listed on Schedule A attached thereto. Collaboration Agreement between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Millennium Pharmaceuticals, Inc. (a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited) dated December 14, 2009. 2007 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Agensys, Inc. Amendment to the Collaboration and License Agreement between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Agensys, Inc. dated effective November 20, 2009. Joint Commercialization Agreement dated October 20, 2018 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and 2.1 3.1 3.3 3.1 4.1 4.2 4.3 Incorporation By Reference Form 8-K SEC File No. Exhibit Filing Date 000-32405 9/21/2021 8-K 000-32405 5/26/2011 8-K 000-32405 3.1 10/8/2020 10-K 10-K 10-Q 000-32405 000-32405 000-32405 2/6/2020 2/12/2021 11/7/2008 8-K 000-32405 10.1 9/11/2015 10-K 000-32405 10.1 2/6/2020 10-K 000-32405 10.49 3/12/2010 10-Q 000-32405 10.1 7/16/2019 3.1 3.2 3.3 3.4 4.1 4.2 4.3 4.4 10.1† 10.3† 10.4† 10.2+†† Collaboration and License Agreement dated January 7, — — — — 10.5†† Amendment to Joint Commercialization Agreement 10-Q 000-32405 10.1 7/29/2021 between Seagen Inc. and Agensys, Inc. effective January 1, 10.6† License and Collaboration Agreement, effective October 7, 2011, between Genmab A/S and Seagen Inc. (f.k.a. Seattle 10-Q/A 000-32405 10.3 4/13/2018 Agensys, Inc. 2020. Genetics, Inc.). 122 123 PART III PART IV 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 2021 fiscal year pursuant to Regulation 14A for our 2022 Annual Meeting of Stockholders, or the 2022 Proxy Statement, and the information to be included in the 2022 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 2022 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 2022 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 “Proposal No. 2 – Advisory Vote on Executive Compensation—Compensation of Executive Officers” appearing in the 2022 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 2022 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 2022 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 2022 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 2022 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. 3—Ratification of Appointment of Independent Registered Public Accounting Firm” appearing in the 2022 Proxy Statement. Such information is incorporated herein by reference. Item 15. Exhibits, Financial Statement Schedules 1. The following documents are filed as part of this report: 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†† 3.1 3.2 3.3 3.4 4.1 4.2 4.3 4.4 10.1† 10.2+†† 10.3† 10.4† 10.5†† 10.6† Exhibit Description License Agreement dated as of August 8, 2021 between RemeGen Co. Ltd. and Seagen Inc. Fourth Amended and Restated Certificate of Incorporation of Seagen Inc. (f.k.a. Seattle Genetics, Inc.). Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of Seagen Inc. (f.k.a. Seattle Genetics, Inc.). Certificate of Amendment of Fourth Amended and Restated Certificate of Incorporation of Seagen Inc. (f.k.a Seattle Genetics, Inc.). Amended and Restated Bylaws of Seagen Inc. (f.k.a. Seattle Genetics, Inc.). Description of Securities of Seagen Inc. Specimen Stock Certificate. Investor Rights Agreement dated July 8, 2003 among Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and certain of its stockholders. Registration Rights Agreement, dated September 10, 2015, by and between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and the persons listed on Schedule A attached thereto. Collaboration Agreement between Seagen Inc. (f.k.a. 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 Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Agensys, Inc. Amendment to the Collaboration and License Agreement between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Agensys, Inc. dated effective November 20, 2009. Joint Commercialization Agreement dated October 20, 2018 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Agensys, Inc. Amendment to Joint Commercialization Agreement between Seagen Inc. and Agensys, Inc. effective January 1, 2020. License and Collaboration Agreement, effective October 7, 2011, between Genmab A/S and Seagen Inc. (f.k.a. Seattle Genetics, Inc.). Incorporation By Reference Form 8-K SEC File No. 000-32405 Exhibit 2.1 Filing Date 9/21/2021 10-Q 000-32405 8-K 000-32405 3.1 3.3 11/7/2008 5/26/2011 8-K 000-32405 3.1 10/8/2020 8-K 000-32405 10-K 10-K 10-Q 000-32405 000-32405 000-32405 3.1 4.1 4.2 4.3 1/16/2020 2/6/2020 2/12/2021 11/7/2008 8-K 000-32405 10.1 9/11/2015 10-K 000-32405 10.1 2/6/2020 — — — — 10-K 000-32405 10.49 3/12/2010 10-Q 000-32405 10.1 7/16/2019 10-Q 000-32405 10.1 7/29/2021 10-Q/A 000-32405 10.3 4/13/2018 122 123 Exhibit Number 10.7†† 10.8†† 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† Exhibit Description Joint Commercialization Agreement dated October 19, 2020 between Genmab A/S and Seagen Inc. (f.k.a. Seattle Genetics Inc.). License and Collaboration Agreement related to ladiratuzumab vedotin dated September 13, 2020 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Merck Sharp & Dohme Corp. Stock Purchase Agreement dated September 13, 2020 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Merck Sharp & Dohme Corp. License Agreement dated March 30, 1998 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Bristol-Myers Squibb Company. Amendment Letter to the Bristol-Myers Squibb Company License Agreement dated July 29, 1999 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Bristol-Myers Squibb Company. Amendment Agreement to the Bristol-Myers Squibb Company License Agreement dated July 26, 2000 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Bristol-Myers Squibb Company. Amendment to License Agreement to the Bristol-Myers Squibb Company License Agreement dated December 18, 2015 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Bristol-Myers Squibb Company. License Agreement dated September 20, 1999 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and the University of Miami. Amendment No. 1 to the University of Miami License Agreement dated August 4, 2000 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and the University of Miami. Letter Agreement Regarding Royalty between the University of Miami and Seagen Inc. (f.k.a. Seattle Genetics, Inc.) dated April 11, 2016. License Agreement between Cascadian Therapeutics, LLC (f.k.a. Cascadian Therapeutics, Inc.) and Array BioPharma Inc. dated December 11, 2014. Amendment No. 1 to License Agreement dated April 23, 2020 between Cascadian Therapeutics, LLC (f.k.a Cascadian Therapeutics, Inc.) and Array Biopharma Inc. Commercial Supply Agreement dated December 1, 2010 between Seagen Inc. (f.k.a. 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 Seagen Inc. (f.k.a. 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 Seagen Inc. (f.k.a. 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 Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and SAFC, an operating division of Sigma-Aldrich, Inc. Incorporation By Reference Form 10-K SEC File No. 000-32405 Exhibit 10.6 Filing Date 2/12/2021 10-Q 000-32405 10.1 10/30/2020 10-Q 000-32405 10.2 10/30/2020 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 10-K 000-32405 10.4 2/19/2016 10.30† Seventh Amendment to Development and Supply 10-K 000-32405 10.42 2/27/2013 10.29†† Sixth Amendment to Development and Supply Agreement 10-K 000-32405 10.26 2/12/2021 10-K/A 000-32405 10.6 11/26/2010 10-K/A 000-32405 10.7 11/26/2010 10-Q 000-32405 10.2 7/29/2021 10-Q 000-32405 10.1 4/26/2018 10-Q 000-32405 10.5 7/31/2020 10.31† Eighth Amendment to Development and Supply Agreement 10-Q 000-32405 10.2 7/30/2015 10-Q 000-32405 10.1 10/28/2021 10.33+†† Tenth Amendment to Development and Supply Agreement, — — — — 10.34†† Eleventh Amendment to Development and Supply 10-K 000-32405 10.29 2/6/2020 10-K 000-32405 10.16 2/12/2021 10.35† Twelfth Amendment to Development and Supply 10-Q 000-32405 10.2 7/16/2019 10-K 000-32405 10.17 2/12/2021 10-K 000-32405 10.18 2/12/2021 10-Q 000-32405 10.2 10/30/2019 10.25† Second Amendment to Development and Supply 10-Q 000-32405 10.4 11/4/2011 10.27† Fourth Amendment to Development and Supply Agreement 10-Q 000-32405 10.6 11/4/2011 Incorporation By Reference Form 10-K SEC File No. Exhibit Filing Date 000-32405 10.15 2/27/2015 10-Q 000-32405 10.1 8/8/2008 10-Q 000-32405 10.5 11/4/2011 10-Q 000-32405 10.7 11/4/2011 Exhibit Number 10.23 10.24† 10.26† 10.28† Exhibit Description Development and Supply Agreement dated February 23, 2004 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories. First Amendment to Development and Supply Agreement dated April 17, 2008 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. Agreement dated June 15, 2009 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. Third Amendment to Development and Supply Agreement dated November 5, 2009 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. dated April 18, 2010 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. Fifth Amendment to Development and Supply Agreement dated August 24, 2010 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. dated November 18, 2010 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. Agreement dated January 2, 2013 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. dated July 7, 2015 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and AbbVie Inc. (formerly part of Abbott Laboratories, Inc.). 10.32†† Ninth Amendment to Development and Supply Agreement, effective as of August 28, 2016 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and AbbVie Inc. (formerly part of Abbott Laboratories, Inc.). effective as of December 26, 2016 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and AbbVie, Inc. (formerly part of Abbott Laboratories, Inc.). Agreement effective July 12, 2018 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and AbbVie Inc. (formerly part of Abbott Laboratories, Inc.). Agreement, effective as of April 25, 2019 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and AbbVie, Inc. (formerly part of Abbott Laboratories, Inc.). 10.36†† Commercial Supply Agreement dated June 13, 2019 between Seagen Inc. (f.k.a Seattle Genetics, Inc.) and Esteve Quimica, S.A. 10.37†† Amendment No. 1 to Commercial Supply Agreement dated April 14, 2020 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Esteve Quimica, S.A. 10.38†† Commercial Supply Agreement dated February 20, 2020 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Corden Plankstadt. 10.39†† Commercial Supply Agreement dated April 2, 2020 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Sterling Pharma Solutions Limited. 10-Q 000-32405 10.1 7/31/2020 10-Q 000-32405 10.2 7/31/2020 10-Q 000-32405 10.3 7/31/2020 10-Q 000-32405 10.4 7/31/2020 124 125 10.8†† License and Collaboration Agreement related to 10-Q 000-32405 10.1 10/30/2020 Exhibit Number 10.7†† 10.10 10.11 10.12 10.13† 10.14 10.15 10.18†† 10.19†† 10.21†† 10.22† Exhibit Description Joint Commercialization Agreement dated October 19, 2020 between Genmab A/S and Seagen Inc. (f.k.a. Seattle Genetics Inc.). ladiratuzumab vedotin dated September 13, 2020 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Merck Sharp & Dohme Corp. 10.9†† Stock Purchase Agreement dated September 13, 2020 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Merck Sharp & Dohme Corp. License Agreement dated March 30, 1998 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Bristol-Myers Squibb Company. Company. Amendment Letter to the Bristol-Myers Squibb Company License Agreement dated July 29, 1999 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Bristol-Myers Squibb Amendment Agreement to the Bristol-Myers Squibb Company License Agreement dated July 26, 2000 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Bristol-Myers Squibb Company. Amendment to License Agreement to the Bristol-Myers Squibb Company License Agreement dated December 18, 2015 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Bristol-Myers Squibb Company. License Agreement dated September 20, 1999 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and the University of Miami. Amendment No. 1 to the University of Miami License Agreement dated August 4, 2000 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and the University of Miami. Inc. dated December 11, 2014. Amendment No. 1 to License Agreement dated April 23, 2020 between Cascadian Therapeutics, LLC (f.k.a Cascadian Therapeutics, Inc.) and Array Biopharma Inc. Commercial Supply Agreement dated December 1, 2010 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and SAFC, an operating division of Sigma-Aldrich, Inc. effective as of January 20, 2014 between Seagen Inc. (f.k.a. 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 Seagen Inc. (f.k.a. 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 Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and SAFC, an operating division of Sigma-Aldrich, Inc. Incorporation By Reference Form 10-K SEC File No. Exhibit Filing Date 000-32405 10.6 2/12/2021 10-Q 000-32405 10.2 10/30/2020 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 10-K 000-32405 10.4 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 10.2 7/29/2021 10-Q 000-32405 10.5 7/31/2020 10-K 000-32405 10.16 2/12/2021 10-K 000-32405 10.18 2/12/2021 10-Q 000-32405 10.2 10/30/2019 10.16†† Letter Agreement Regarding Royalty between the University of Miami and Seagen Inc. (f.k.a. Seattle Genetics, Inc.) dated April 11, 2016. 10.17 License Agreement between Cascadian Therapeutics, LLC (f.k.a. Cascadian Therapeutics, Inc.) and Array BioPharma 10-Q 000-32405 10.1 4/26/2018 10.20†† First Amendment to Commercial Supply Agreement 10-K 000-32405 10.17 2/12/2021 Exhibit Number 10.23 10.24† 10.25† 10.26† 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†† Exhibit Description Development and Supply Agreement dated February 23, 2004 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories. First Amendment to Development and Supply Agreement dated April 17, 2008 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. Second Amendment to Development and Supply Agreement dated June 15, 2009 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. Third Amendment to Development and Supply Agreement dated November 5, 2009 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. Fourth Amendment to Development and Supply Agreement dated April 18, 2010 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. Fifth Amendment to Development and Supply Agreement dated August 24, 2010 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. Sixth Amendment to Development and Supply Agreement dated November 18, 2010 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. Seventh Amendment to Development and Supply Agreement dated January 2, 2013 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Abbott Laboratories, Inc. Eighth Amendment to Development and Supply Agreement dated July 7, 2015 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and AbbVie Inc. (formerly part of Abbott Laboratories, Inc.). Ninth Amendment to Development and Supply Agreement, effective as of August 28, 2016 between Seagen Inc. (f.k.a. 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 Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and AbbVie, Inc. (formerly part of Abbott Laboratories, Inc.). Eleventh Amendment to Development and Supply Agreement effective July 12, 2018 between Seagen Inc. (f.k.a. 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 Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and AbbVie, Inc. (formerly part of Abbott Laboratories, Inc.). Commercial Supply Agreement dated June 13, 2019 between Seagen Inc. (f.k.a Seattle Genetics, Inc.) and Esteve Quimica, S.A. Amendment No. 1 to Commercial Supply Agreement dated April 14, 2020 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Esteve Quimica, S.A. Commercial Supply Agreement dated February 20, 2020 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Corden Plankstadt. Commercial Supply Agreement dated April 2, 2020 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and Sterling Pharma Solutions Limited. Incorporation By Reference Form 10-K SEC File No. 000-32405 Exhibit 10.15 Filing Date 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-K 000-32405 10.26 2/12/2021 10-K 000-32405 10.42 2/27/2013 10-Q 000-32405 10.2 7/30/2015 10-Q 000-32405 10.1 10/28/2021 — — — — 10-K 000-32405 10.29 2/6/2020 10-Q 000-32405 10.2 7/16/2019 10-Q 000-32405 10.1 7/31/2020 10-Q 000-32405 10.2 7/31/2020 10-Q 000-32405 10.3 7/31/2020 10-Q 000-32405 10.4 7/31/2020 124 125 Exhibit Number 10.40†† 10.41 10.42 10.43† 10.44†† 10.45† 10.46†† 10.47† 10.48†† 10.49† 10.50 10.51* 10.52+* Exhibit Description Commercial Supply Agreement between Hovione Farmaciencia, SA and Seagen Inc. dated July 1, 2021. Lease Agreement dated December 1, 2000 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and WCM 132-302, LLC. First Amendment to Lease dated May 28, 2003 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and B&N 141-302, LLC. Second Amendment to Lease dated July 1, 2008 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and B&N 141-302, LLC. Third Amendment to Lease dated May 9, 2011 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and B&N 141-302, LLC. Fourth Amendment to Lease dated October 24, 2017 between Seagen Inc. (f.k.a. 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 Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and WCM Highlands II, LLC. First Amendment to Office Lease dated October 24, 2017 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and SNH Medical Office Properties Trust, as successor in interest to WCM Highlands II, LLC. Lease agreement dated June 12, 2021 between Seagen Inc. and DPIF2 WA 7 Mountain View, 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 Seagen Inc. (f.k.a. Seattle Genetics, Inc.). Form of Indemnification Agreement between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and each of its officers and directors. Amended and Restated Employment Agreement dated February 9, 2022, between Seagen Inc. and Clay Siegall. 10.53+* Amended and Restated Employment Agreement dated February 9, 2022, between Seagen Inc. and Roger Dansey. 10.54+* Amended and Restated Employment Agreement dated February 9, 2022, between Seagen Inc. and Vaughn Himes. 10.55+* Amended and Restated Employment Agreement dated February 9, 2022, between Seagen Inc. and Jean Liu. 10.56+* Amended and Restated Employment Agreement dated February 9, 2022, between Seagen Inc. and Charles Romp. 10.57+* Amended and Restated Employment Agreement dated February 9, 2022, between Seagen Inc. and Todd Simpson. Incorporation By Reference Form 10-Q SEC File No. 000-32405 Exhibit 10.2 Filing Date 10/28/2021 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 4/29/2021 10-K 000-32405 10.12 02/15/2018 10-Q 000-32405 10.1 4/29/2021 10-K 000-32405 10.14 2/15/2018 10-Q 000-32405 10.3 7/29/2021 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 — — — — — — — — — — — — — — — — — — — — — — — — 2010. effective as of May 18, 2012. effective as of May 16, 2014. effective as of May 20, 2016. effective as of May 18, 2018. effective as of May 15, 2020. May 9, 2016. September 29, 2017. October 24, 2018. 4, 2019. 9, 2021. Exhibit Number 10.58* Exhibit Description Amended and Restated 1998 Stock Option Plan, effective as of August 5, 2009. Incorporation By Reference Form 10-Q SEC File No. Exhibit Filing Date 000-32405 10.1 8/10/2009 10.59* 2000 Directors’ Stock Option Plan, as amended February 5, 10-K 000-32405 10.13 3/12/2010 10.60* Amended and Restated 2007 Equity Incentive Plan, 10-Q 000-32405 10.1 8/8/2012 10.61* Amended and Restated 2007 Equity Incentive Plan, 10-Q 000-32405 10.1 8/8/2014 10.62* Amended and Restated 2007 Equity Incentive Plan, 10-Q 000-32405 10.4 7/26/2016 10.63* Amended and Restated 2007 Equity Incentive Plan, 10-Q 000-32405 10.2 7/26/2018 10.64* Amended and Restated 2007 Equity Incentive Plan, 10-Q 000-32405 10.6 7/31/2020 10.65* Long Term Incentive Plan for ECHELON-1, effective as of 10-Q 000-32405 10.2 7/26/2016 10.66* Long Term Incentive Plan for EV and TV, effective as of 10-Q 000-32405 10.4 11/6/2017 10.67* Long Term Incentive Plan for Tucatinib, effective as of 10-Q 000-32405 10.7 10/26/2018 10.68* Senior Executive Annual Bonus Plan, as amended February 10-K 000-32405 10.69 02/07/2019 10.69* Senior Executive Annual Bonus Plan, as amended February 10-K 000-32405 10.66 2/12/2021 10.70* Amended and Restated 2000 Employee Stock Purchase 10-Q 000-32405 10.3 4/29/2021 Plan, effective March 12, 2021. 10.71* Rules of the Amended and Restated 2007 Equity Incentive Plan for Restricted Stock Unit Awards Granted to French Grantees effective as of March 13, 2020. 10-Q 000-32405 10.3 4/30/2020 10.72* Form Notice of Grant and Stock Option Agreement under 10-K 000-32405 10.11 3/15/2005 the Amended and Restated 1998 Stock Option Plan. 10.73* Form Notice of Grant and Stock Option Agreement under 10-K 000-32405 10.12 3/15/2005 10.74* Form Stock Option Agreement for employees under 2007 10-K 000-32405 10.44 3/13/2009 the 2000 Directors’ Stock Option Plan. Equity Incentive Plan. 10.75* Form of Notice of Stock Option Grant and Stock 10-Q 000-32405 10.4 8/5/2011 10.76* Form of Stock Unit Grant Notice and Stock Unit 8-K 000-32405 10.1 8/30/2011 10.77* Form of Stock Unit Grant Notice and Stock Unit 10-K 000-32405 10.33 2/28/2014 Option Agreement for non-employee directors under the Amended and Restated 2007 Equity Incentive Plan. Agreement for employees under the Amended and Restated 2007 Equity Incentive Plan. 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 Amended and Restated 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 (approved May 18, 2018). 10.78* 10.79* 10-Q 000-32405 10.3 7/26/2016 10-Q 000-32405 10.3 7/26/2018 126 127 Exhibit Number 10.40†† 10.41 Exhibit Description Commercial Supply Agreement between Hovione Farmaciencia, SA and Seagen Inc. dated July 1, 2021. Incorporation By Reference Form 10-Q SEC File No. Exhibit Filing Date 000-32405 10.2 10/28/2021 Lease Agreement dated December 1, 2000 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and WCM 132-302, LLC. S-1/A 333-50266 10.21 1/4/2001 10.42 First Amendment to Lease dated May 28, 2003 between 10-Q 333-50266 10.1 8/12/2003 10.43† Second Amendment to Lease dated July 1, 2008 between 10-Q 000-32405 10.1 11/7/2008 10.44†† Third Amendment to Lease dated May 9, 2011 between 10-Q 000-32405 10.2 4/29/2021 Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and B&N 141-302, LLC. Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and B&N 141-302, LLC. Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and B&N 141-302, LLC. between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and SNH Medical Office Properties Trust, as successor in interest to B&N 141-302, LLC. 10.45† Fourth Amendment to Lease dated October 24, 2017 10-K 000-32405 10.12 02/15/2018 10.46†† Office Lease dated May 9, 2011 between Seagen Inc. (f.k.a. 10-Q 000-32405 10.1 4/29/2021 Seattle Genetics, Inc.) and WCM Highlands II, LLC. 10.47† First Amendment to Office Lease dated October 24, 2017 between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and SNH Medical Office Properties Trust, as successor in interest to WCM Highlands II, LLC. 10-K 000-32405 10.14 2/15/2018 10.48†† Lease agreement dated June 12, 2021 between Seagen Inc. 10-Q 000-32405 10.3 7/29/2021 and DPIF2 WA 7 Mountain View, LLC. 10.49† Purchase Agreement, dated June 16, 2017, between 10-Q 000-32405 10.1 11/6/2017 10.50 Assignment and Assumption of Purchase Agreement, dated 10-Q 000-32405 10.2 11/6/2017 BMR-3450 Monte Villa Parkway, LLC and ZymoGenetics, Inc July 30, 2017, between ZymoGenetics, Inc. and Seagen Inc. (f.k.a. Seattle Genetics, Inc.). 10.51* Form of Indemnification Agreement between Seagen Inc. (f.k.a. Seattle Genetics, Inc.) and each of its officers and S-1/A 333-50266 10.29 1/4/2001 directors. 10.52+* Amended and Restated Employment Agreement dated February 9, 2022, between Seagen Inc. and Clay Siegall. 10.53+* Amended and Restated Employment Agreement dated February 9, 2022, between Seagen Inc. and Roger Dansey. 10.54+* Amended and Restated Employment Agreement dated February 9, 2022, between Seagen Inc. and Vaughn Himes. 10.55+* Amended and Restated Employment Agreement dated February 9, 2022, between Seagen Inc. and Jean Liu. 10.56+* Amended and Restated Employment Agreement dated February 9, 2022, between Seagen Inc. and Charles Romp. 10.57+* Amended and Restated Employment Agreement dated February 9, 2022, between Seagen Inc. and Todd Simpson. — — — — — — — — — — — — — — — — — — — — — — — — Exhibit Number 10.58* 10.59* 10.60* 10.61* 10.62* 10.63* 10.64* 10.65* 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* Exhibit Description Amended and Restated 1998 Stock Option Plan, effective as of August 5, 2009. 2000 Directors’ Stock Option Plan, as amended February 5, 2010. Amended and Restated 2007 Equity Incentive Plan, effective as of May 18, 2012. Amended and Restated 2007 Equity Incentive Plan, effective as of May 16, 2014. Amended and Restated 2007 Equity Incentive Plan, effective as of May 20, 2016. Amended and Restated 2007 Equity Incentive Plan, effective as of May 18, 2018. Amended and Restated 2007 Equity Incentive Plan, effective as of May 15, 2020. Long Term Incentive Plan for ECHELON-1, effective as of May 9, 2016. Long Term Incentive Plan for EV and TV, effective as of September 29, 2017. Long Term Incentive Plan for Tucatinib, effective as of October 24, 2018. Senior Executive Annual Bonus Plan, as amended February 4, 2019. Senior Executive Annual Bonus Plan, as amended February 9, 2021. Amended and Restated 2000 Employee Stock Purchase Plan, effective March 12, 2021. Rules of the Amended and Restated 2007 Equity Incentive Plan for Restricted Stock Unit Awards Granted to French Grantees effective as of March 13, 2020. Form Notice of Grant and Stock Option Agreement under the Amended and Restated 1998 Stock Option Plan. Form Notice of Grant and Stock Option Agreement under the 2000 Directors’ Stock Option Plan. Form Stock Option Agreement for employees under 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 the 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 Amended and Restated 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 (approved May 18, 2018). Incorporation By Reference Form 10-Q SEC File No. 000-32405 Exhibit 10.1 Filing Date 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 10.6 7/31/2020 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 10-K 000-32405 10.66 2/12/2021 10-Q 000-32405 10.3 4/29/2021 10-Q 000-32405 10.3 4/30/2020 10-K 000-32405 10.11 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 10-Q 000-32405 10.3 7/26/2018 126 127 Exhibit Number 10.80* 10.81* 10.82* 10.83* 10.84* 10.85* 10.86* 10.87* 10.88* 10.89* 10.90* 10.91* 10.92* 10.93* 10.94* 10.95* Exhibit Description 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 the Amended and Restated 2007 Equity Incentive Plan (approved May 18, 2018). Form of Time-Based Stock Option Agreement for employees under the Amended and Restated 2007 Equity Incentive Plan (approved May 18, 2018). Form of Performance-Based Stock Unit Grant Notice and Stock Unit Agreement for employees under the 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 the Amended and Restated 2007 Equity Incentive Plan (approved May 18, 2018). Form of Stock Option Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved August 30, 2018). Form of Stock Option Agreement for non-US Participants under the Amended and Restated 2007 Equity Incentive Plan (approved August 30, 2018). Form of Performance-Based Stock Unit Agreement for U.S. Participants under the 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 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 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 Amended and Restated 2007 Equity Incentive Plan (approved August 26, 2019). Form of Stock Option Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved December 19, 2019). Form of Stock Option Agreement for Non-US Participants under the 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 the Amended and Restated 2007 Equity Incentive Plan (approved December 19, 2019). 10.99* Form of Stock Unit Grant Notice for Non-US Participants 10-K 000-32405 10.86 2/6/2020 Incorporation By Reference Form 10-K SEC File No. Exhibit Filing Date 000-32405 10.83 2/6/2020 10-K 000-32405 10.84 2/6/2020 10-K 000-32405 10.85 2/6/2020 10-K 000-32405 10.87 2/6/2020 Exhibit Number 10.96* 10.97* 10.98* Exhibit Description Form of Stock Unit Grant Notice and Stock Unit Agreement for non-US Participants under the Amended and Restated 2007 Equity Incentive Plan (approved December 19, 2019). Form of Performance-Based Stock Unit Agreement for U.S. Participants under the 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). Long Term Incentive Plan for EV and TV (approved December 19, 2019). 10.100* Form of Performance-Based Stock Unit Notice and Stock Unit Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved December 24, 2019). Unit Agreement for Non-U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved December 24, 2019). 10.102* Form of Stock Option Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved March 13, 2020). under the Amended and Restated 2007 Equity Incentive Plan (approved March 13, 2020). Agreement for French Grantees under the Amended and Restated 2007 Equity Incentive Plan (approved March 13, 2020). Form of Performance-Based Stock Unit Grant Notice and Stock Unit Agreement under the Amended and Restated 2007 Equity Incentive Plan (approved August 16, 2020). 10.106* Form of Stock Option Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved March 8, 2021). 10.108* 10.109* under the Amended and Restated 2007 Equity Incentive Plan (approved March 8, 2021). Form of Stock Option Agreement for Non-Employee Directors under the Amended and Restated 2007 Equity Incentive Plan (approved March 8, 2021). Form of Time-Based Stock Unit Grant Notice and Stock Unit Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved March Incorporation By Reference Form 10-Q SEC File No. 000-32405 Exhibit 10.4 Filing Date 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 10.101* Form of Performance-Based Stock Unit Notice and Stock 10-K 000-32405 10.88 2/6/2020 10-Q 000-32405 10.10 7/26/2018 10-Q 000-32405 10.1 4/30/2020 10-Q 000-32405 10.8 10/26/2018 10-Q 000-32405 10.9 10/26/2018 10.103* Form of Stock Option Agreement for Non-U.S. Participants 10-Q 000-32405 10.2 4/30/2020 10.104* Form of Stock Unit Grant Notice and Stock Unit 10-Q 000-32405 10.4 4/30/2020 10-Q 000-32405 10.10 10/26/2018 10.105* 10-Q 000-32405 10.3 10/30/2020 10-Q 000-32405 10.11 10/26/2018 10-Q 000-32405 10.4 4/29/2021 10-Q 000-32405 10.12 10/26/2018 10-Q 000-32405 10.1 10/30/2019 10-K 000-32405 10.80 2/6/2020 10-K 000-32405 10.81 2/6/2020 10-K 000-32405 10.82 2/6/2020 10.107* Form of Stock Option Agreement for Non-U.S. Participants 10-Q 000-32405 10.5 4/29/2021 10-Q 000-32405 10.6 4/29/2021 10-Q 000-32405 10.7 4/29/2021 10.110* Form of Stock Unit Grant Notice and Stock Unit 10-Q 000-32405 10.8 4/29/2021 Agreement for Non-U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved March 10.111* Form of Stock Unit Grant Notice and Stock Unit 10-Q 000-32405 10.9 4/29/2021 Agreement for French Grantees under the Amended and Restated 2007 Equity Incentive Plan (approved March 8, 8, 2021). 8, 2021). 2021). 128 129 Exhibit Number 10.80* 10.81* 10.82* 10.83* 10.84* 10.85* 10.86* 10.87* 10.88* 10.89* 10.90* 10.91* 10.92* 10.93* 10.94* 10.95* Exhibit Description 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 the Amended and Restated 2007 Equity Incentive Plan (approved May 18, 2018). Form of Time-Based Stock Option Agreement for employees under the Amended and Restated 2007 Equity Incentive Plan (approved May 18, 2018). Form of Performance-Based Stock Unit Grant Notice and Stock Unit Agreement for employees under the Amended and Restated 2007 Equity Incentive Plan (approved May 18, 2018). 2018). Form of Time-Based Stock Unit Grant Notice and Stock Unit Agreement for employees under the Amended and Restated 2007 Equity Incentive Plan (approved May 18, Form of Stock Option Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved August 30, 2018). Form of Stock Option Agreement for non-US Participants under the Amended and Restated 2007 Equity Incentive Plan (approved August 30, 2018). Form of Performance-Based Stock Unit Agreement for U.S. Participants under the 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 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 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 Amended and Restated 2007 Equity Incentive Plan (approved August 26, 2019). Form of Stock Option Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved December 19, 2019). Form of Stock Option Agreement for Non-US Participants under the 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 the Amended and Restated 2007 Equity Incentive Plan (approved December 19, 2019). Incorporation By Reference Form 10-Q SEC File No. Exhibit Filing Date 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 10-K 000-32405 10.80 2/6/2020 10-K 000-32405 10.81 2/6/2020 10-K 000-32405 10.82 2/6/2020 Exhibit Number 10.96* 10.97* 10.98* 10.99* 10.100* 10.101* 10.102* 10.103* 10.104* 10.105* 10.106* 10.107* 10.108* 10.109* 10.110* 10.111* Exhibit Description Form of Stock Unit Grant Notice and Stock Unit Agreement for non-US Participants under the Amended and Restated 2007 Equity Incentive Plan (approved December 19, 2019). Form of Performance-Based Stock Unit Agreement for U.S. Participants under the 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 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 Amended and Restated 2007 Equity Incentive Plan (approved December 24, 2019). Form of Stock Option Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved March 13, 2020). Form of Stock Option Agreement for Non-U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved March 13, 2020). Form of Stock Unit Grant Notice and Stock Unit Agreement for French Grantees under the Amended and Restated 2007 Equity Incentive Plan (approved March 13, 2020). Form of Performance-Based Stock Unit Grant Notice and Stock Unit Agreement under the Amended and Restated 2007 Equity Incentive Plan (approved August 16, 2020). Form of Stock Option Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved March 8, 2021). Form of Stock Option Agreement for Non-U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved March 8, 2021). Form of Stock Option Agreement for Non-Employee Directors under the Amended and Restated 2007 Equity Incentive Plan (approved March 8, 2021). Form of Time-Based Stock Unit Grant Notice and Stock Unit Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved March 8, 2021). Form of Stock Unit Grant Notice and Stock Unit Agreement for Non-U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved March 8, 2021). Form of Stock Unit Grant Notice and Stock Unit Agreement for French Grantees under the Amended and Restated 2007 Equity Incentive Plan (approved March 8, 2021). Incorporation By Reference Form 10-K SEC File No. 000-32405 Exhibit 10.83 Filing Date 2/6/2020 10-K 000-32405 10.84 2/6/2020 10-K 000-32405 10.85 2/6/2020 10-K 000-32405 10.86 2/6/2020 10-K 000-32405 10.87 2/6/2020 10-K 000-32405 10.88 2/6/2020 10-Q 000-32405 10.1 4/30/2020 10-Q 000-32405 10.2 4/30/2020 10-Q 000-32405 10.4 4/30/2020 10-Q 000-32405 10.3 10/30/2020 10-Q 000-32405 10.4 4/29/2021 10-Q 000-32405 10.5 4/29/2021 10-Q 000-32405 10.6 4/29/2021 10-Q 000-32405 10.7 4/29/2021 10-Q 000-32405 10.8 4/29/2021 10-Q 000-32405 10.9 4/29/2021 128 129 + † †† * 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 asterisks in the Exhibit, has been omitted pursuant to Item 601(b)(2) of Regulation S-K. Indicates a management contract or compensatory plan or arrangement. Item 16. Form 10-K Summary None. Exhibit Number 10.112* 10.113* 10.114* 10.115* 10.116* 10.117* Exhibit Description Form of Stock Unit Grant Notice and Stock Unit Agreement for non-employee directors under the Amended and Restated 2007 Equity Incentive Plan (approved March 8, 2021). Form of Performance-Based Stock Unit Grant Notice and Stock Unit Agreement for employees under the Amended and Restated 2007 Equity Incentive Plan (approved August 16, 2021). Form of Stock Option Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved August 16, 2021). Form of Stock Option Agreement for Non-U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved August 16, 2021). Form of Stock Unit Grant Notice and Stock Unit Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved August 16, 2021). Form of Stock Unit Grant Notice and Stock Unit Agreement for Non-U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved August 16, 2021). Incorporation By Reference Form 10-Q SEC File No. 000-32405 Exhibit 10.10 Filing Date 4/29/2021 10-Q 000-32405 10.3 10/28/2021 10-Q 000-32405 10.4 10/28/2021 10-Q 000-32405 10.5 10/28/2021 10-Q 000-32405 10.6 10/28/2021 10-Q 000-32405 10.7 10/28/2021 10.118+* Form of Performance-Based Stock Unit Grant Notice and Stock Unit Agreement under the Amended and Restated 2007 Equity Incentive Plan (approved January 18, 2022). — — — — 21.1+ 23.1+ 31.1+ 31.2+ 32.1+ 32.2+ 101 104 Subsidiaries of Seagen 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, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income (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) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 130 131 + † †† * 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 asterisks in the Exhibit, has been omitted pursuant to Item 601(b)(2) of Regulation S-K. Indicates a management contract or compensatory plan or arrangement. Item 16. Form 10-K Summary None. Exhibit Number 10.112* 10.113* Exhibit Description Form of Stock Unit Grant Notice and Stock Unit Agreement for non-employee directors under the Amended and Restated 2007 Equity Incentive Plan (approved March Form of Performance-Based Stock Unit Grant Notice and Stock Unit Agreement for employees under the Amended and Restated 2007 Equity Incentive Plan (approved August 8, 2021). 16, 2021). Incorporation By Reference Form 10-Q SEC File No. Exhibit Filing Date 000-32405 10.10 4/29/2021 10-Q 000-32405 10.3 10/28/2021 10.114* Form of Stock Option Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved August 16, 2021). 10-Q 000-32405 10.4 10/28/2021 10.115* Form of Stock Option Agreement for Non-U.S. Participants 10-Q 000-32405 10.5 10/28/2021 10.116* Form of Stock Unit Grant Notice and Stock Unit 10-Q 000-32405 10.6 10/28/2021 under the Amended and Restated 2007 Equity Incentive Plan (approved August 16, 2021). Agreement for U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved August 16, 10.117* Form of Stock Unit Grant Notice and Stock Unit 10-Q 000-32405 10.7 10/28/2021 Agreement for Non-U.S. Participants under the Amended and Restated 2007 Equity Incentive Plan (approved August 2021). 16, 2021). 10.118+* Form of Performance-Based Stock Unit Grant Notice and Stock Unit Agreement under the Amended and Restated 2007 Equity Incentive Plan (approved January 18, 2022). — — — — Subsidiaries of Seagen Inc. Consent of Independent Registered Public Accounting Firm Certification of Chief Executive Officer pursuant to Rule 13a-14(a). 13a-14(a). 31.2+ Certification of Chief Financial Officer pursuant to Rule 32.1+ Certification of Chief Executive Officer pursuant to 18 32.2+ Certification of Chief Financial Officer pursuant to U.S.C. Section 1350. 18 U.S.C. Section 1350. 21.1+ 23.1+ 31.1+ 101 The following financial statements from the Company's Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income (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. — — — — — — — — — — — — — — — — — — — — — — — — — — — — 104 Cover Page Interactive Data File (formatted as Inline — — — — XBRL and contained in Exhibit 101) 130 131 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 I, Clay B. Siegall, certify that: 1. I have reviewed this Annual Report on Form 10-K of Seagen Inc.; CERTIFICATIONS Exhibit 31.1 Date: February 9, 2022 SEAGEN INC. /S/ CLAY B. SIEGALL Clay B. Siegall President & Chief Executive Officer (Principal Executive Officer) Date: February 9, 2022 /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 /S/ FELIX J. BAKER Title Date Director, President & CEO (Principal Executive Officer) February 9, 2022 Chief Financial Officer (Principal Financial and Accounting Officer) February 9, 2022 Felix J. Baker Director /S/ DAVID W. GRYSKA David W. Gryska /S/ MARC E. LIPPMAN Marc E. Lippman /S/ TED LOVE Ted Love /S/ JOHN A. ORWIN John A. Orwin /S/ ALPNA SETH Alpna Seth Director Director Director Director Director /S/ NANCY A. SIMONIAN Nancy A. Simonian Director /S/ DANIEL G. WELCH Daniel G. Welch Director 132 February 9, 2022 February 9, 2022 February 9, 2022 February 9, 2022 February 9, 2022 February 9, 2022 February 9, 2022 February 9, 2022 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 9, 2022 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 SEAGEN INC. /S/ CLAY B. SIEGALL Clay B. Siegall President & Chief Executive Officer (Principal Executive Officer) /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. Title Date Clay B. Siegall Director, President & CEO (Principal Executive Officer) February 9, 2022 Todd E. Simpson Chief Financial Officer (Principal Financial and Accounting Officer) February 9, 2022 Date: February 9, 2022 Date: February 9, 2022 Signature /S/ CLAY B. SIEGALL /S/ TODD E. SIMPSON /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/ TED LOVE Ted Love Director /S/ JOHN A. ORWIN John A. Orwin Director /S/ ALPNA SETH Alpna Seth Director /S/ NANCY A. SIMONIAN Nancy A. Simonian Director /S/ DANIEL G. WELCH Daniel G. Welch Director February 9, 2022 February 9, 2022 February 9, 2022 February 9, 2022 February 9, 2022 February 9, 2022 February 9, 2022 February 9, 2022 132 I, Clay B. Siegall, certify that: 1. I have reviewed this Annual Report on Form 10-K of Seagen Inc.; CERTIFICATIONS Exhibit 31.1 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. b. c. d. 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; 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; 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 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. b. 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 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 9, 2022 Exhibit 31.2 Exhibit 32.1 SEAGEN INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Seagen Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, 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 9, 2022 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 Seagen 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. I, Todd E. Simpson, certify that: 1. I have reviewed this Annual Report on Form 10-K of Seagen 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. b. c. d. 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; 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; 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 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. b. 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 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 9, 2022 Exhibit 31.2 Exhibit 32.1 I, Todd E. Simpson, certify that: 1. I have reviewed this Annual Report on Form 10-K of Seagen Inc.; CERTIFICATIONS SEAGEN INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 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; In connection with the Annual Report of Seagen Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, 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 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: By: operations of the Company. /s/ Clay B. Siegall Clay B. Siegall Chief Executive Officer (Principal Executive Officer) Date: February 9, 2022 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 Seagen 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. 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 9, 2022 SEAGEN 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 Seagen Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, 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 9, 2022 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 Seagen 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. This page intentionally left blank. SEAGEN 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 Seagen Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, 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 9, 2022 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 Seagen 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. This page intentionally left blank. This page intentionally left blank. Corporate Information Executive Management Board of Directors Clay B. Siegall, Ph.D. Clay B. Siegall, Ph.D. President, Chief Executive Officer and Chairman of the Board 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 Jean I. Liu, J.D. Chief Legal Officer Todd E. Simpson Chief Financial Officer Lee J. Heeson Natasha A. Hernday Seagen Felix J. Baker, Ph.D. Co-Managing Member, Baker Bros. Advisors Former Executive Vice President and Chief Financial Officer, David W. Gryska Incyte Corporation Marc E. Lippman, M.D. Professor of Oncology at Georgetown University Medical Center’s Lombardi Comprehensive Cancer Center Ted W. Love, M.D. Therapeutics Executive Vice President, Commercial International President and Chief Executive Officer, Global Blood Executive Vice President, Corporate Development John A. Orwin and Alliance Management President and Chief Executive Officer, Atreca Christopher P. Pawlowicz Alpna H. Seth, Ph.D. Executive Vice President, Human Resources President and Chief Executive Officer, Nura Bio Charles (Chip) R. Romp Nancy A. Simonian, M.D. Executive Vice President, Commercial U.S. Chief Executive Officer, Syros Pharmaceuticals Daniel G. Welch Former Executive Partner of Sofinnova Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Headquarters Transfer Agent & Registrar Stock Listing Seagen Inc. 21823 30th Drive Southeast Bothell, WA 98021 (425) 527-4000 Website www.seagen.com Corporate Responsibility Report Available at www.seagen.com/who-we- are/corporate-responsibility www.computershare.com/investor Computershare P.O. Box 505000 Louisville, KY 40233 (877) 419-8489 Legal Counsel Cooley LLP Seattle, Washington Independent Auditors PricewaterhouseCoopers LLP Seattle, Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Company’s common stock is traded on the Nasdaq Global Select Market under the symbol SGEN. Stockholder Inquiries 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. This page intentionally left blank. Corporate Information Executive Management 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 Jean I. Liu, J.D. Chief Legal Officer Todd E. Simpson Chief Financial Officer Lee J. Heeson Executive Vice President, Commercial International Natasha A. Hernday Executive Vice President, Corporate Development and Alliance Management Christopher P. Pawlowicz Executive Vice President, Human Resources Charles (Chip) R. Romp Executive Vice President, Commercial U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board of Directors Clay B. Siegall, Ph.D. President, Chief Executive Officer and Chairman of the Board, Seagen Felix J. Baker, Ph.D. Co-Managing Member, Baker Bros. 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 Ted W. Love, M.D. President and Chief Executive Officer, Global Blood Therapeutics John A. Orwin President and Chief Executive Officer, Atreca Alpna H. Seth, Ph.D. President and Chief Executive Officer, Nura Bio Nancy A. Simonian, M.D. Chief Executive Officer, Syros Pharmaceuticals Daniel G. Welch Former Executive Partner of Sofinnova Ventures Corporate Headquarters Seagen Inc. 21823 30th Drive Southeast Bothell, WA 98021 (425) 527-4000 Website www.seagen.com Corporate Responsibility Report Available at www.seagen.com/who-we- are/corporate-responsibility Transfer Agent & Registrar Computershare P.O. Box 505000 Louisville, KY 40233 (877) 419-8489 www.computershare.com/investor Legal Counsel Cooley LLP Seattle, Washington Independent Auditors PricewaterhouseCoopers LLP Seattle, Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock Listing The Company’s common stock is traded on the Nasdaq Global Select Market under the symbol SGEN. Stockholder Inquiries 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. seagen.com Nasdaq: SGEN @SeagenGlobal Find us on LinkedIn Forward-Looking Statements This 2021 Annual Report, including Seagen’s Annual Report on Form 10-K for the year ended December 31, 2021 included with the 2021 Annual Re- port, 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 2022 outlook, the Company’s potential to achieve the noted development and regulatory milestones in 2022 and future periods, the Company’s potential to effectively commercialize the Company’s products in its territories globally; 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; 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, TUKYSA, TIVDAK and the Company’s 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 expected, as well as risks and uncertainties associated with maintaining or increasing sales of ADCETRIS, PADCEV, TUKYSA and TIVDAK due to competition, unexpected adverse events, regulatory action, reimbursement, market adoption by physicians, the impacts of the COVID-19 pandemic, global trends toward healthcare cost containment, challenges in commercializing outside of the U.S. or other factors. The Company may also be delayed or unsuccessful in its planned clinical trial initiations, enrollment in and conduct of its clinical trials, obtaining data from clinical trials, planned COVID-19 pandemic, negative or disappointing clinical trial results, unexpected adverse events or regulatory actions and the inherent uncertainty associated with the regulatory approval process and the pricing and reimbursement process when applicable. Seagen 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, 2021 included with this 2021 Annual Report. Seagen 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. ©2022 Seagen Inc. Seagen, the Seagen logo, ADCETRIS, TUKYSA and TIVDAK are our registered trademarks in the United States. PADCEV is a U.S. registered trademark jointly owned by us and Agensys, Inc. All other trademarks, tradenames and service marks are the property of their respective owners. 

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