Washington Editor

As predicted last week by analysts, Seattle Genetics Inc. landed a cozy global development and commercialization deal for its Hodgkin's lymphoma drug brentuximab vedotin (SGN-35), potentially worth more than $365 million, including $60 million up front, plus tiered double-digit royalties, which Needham & Co. analyst Mark Monane called a "nice warm deal as the weather gets colder."

The taker: Cambridge, Mass.-based Millennium Pharmaceuticals Inc., the oncology unit of Japanese drugmaker Takeda Pharmaceutical Co. Ltd., which is gaining the rights to commercialize brentuximab vedotin, a late-stage antibody drug conjugate targeting CD30, in all countries outside the U.S. and Canada.

Investors, however, were not impressed with the partnership, with Seattle Genetics' stock (NASDAQ:SGEN) barely budging in Tuesday's trading, closing at $8.80, a loss of 14 cents.

But Needham's Monane insisted that the collaboration would allow for growth in a much faster and deeper way in brentuximab vedotin's life cycle by providing funding for continuous development in a variety of indications, while decreasing Seattle Genetics' regulatory and commercialization risk.

After conducting a "rigorous evaluation" of potential partners that could help the company accelerate its global development timeline and maximize the commercial opportunity for brentuximab vedotin, the firm "found a superb partner in Millennium," said Seattle Genetics CEO Clay Siegall.

"They are ideally suited to be our strategic collaborators, given their strong global presence, commercial experience and commitment to oncology," he told investors and analysts Tuesday during a conference call.

Bothell, Wash.-based Seattle Genetics expects to have data from its Phase III pivotal trial of brentuximab vedotin in patients with relapsed or refractory Hodgkin's lymphoma in the second half of 2010, Siegall noted.

That trial, which is being conducted under a special protocol assessment agreement with the FDA, is designed to support regulatory submissions, including an accelerated approval in the U.S. and a marketing authorization application for conditional approval in Europe, both planned in 2011, he said.

Seattle Genetics also has several Phase II trials of brentuximab vedotin under way, including a study evaluating the drug as a treatment of systemic anaplastic large cell lymphoma (ALCL), and a retreatment trial in Hodgkin's lymphoma and ALCL patients who have relapsed after initially responding to brentuximab vedotin, Siegall noted.

Also in the first half of 2010, Seattle Genetics plans to start a Phase I safety trial of brentuximab vedotin in combination with the standard frontline chemotherapy regimen to inform future frontline studies, he explained.

"We intend to work with Millennium-Takeda to expand into other important indications, such as earlier lines of therapy for Hodgkin's lymphoma and ALCL, other CD30-positive malignancies, and in the longer term, explore the potential in autoimmune disease indications," Siegall said.

He insisted that brentuximab vedotin has the opportunity to define CD30 as a target much the way Genentech Inc.'s and Biogen Idec's Rituxan (rituximab) did for CD20-positive cancers.

But, Siegall noted, "Rituxan ended up to be an important product for many different diseases."

While researchers may "know a lot" about CD30, "the world doesn't know everything about CD30, nor does it know everything about CD20 to date."

But, he added, "We are going to learn a ton about CD30. We will be working with oncologists and looking at a variety of disease types."

Siegall said his firm has long-been open to partnering possibilities for brentuximab vedotin outside of the U.S. "if it made compelling strategic and financial sense."

As part of Takeda, Japan's largest pharmaceutical company, Millennium has an oncology-specific infrastructure in place in Europe and other areas around the world, said Bruce Seeley, executive vice president of Seattle Genetics' commercial group.

He noted that Millennium's pipeline includes 17 oncology molecules, led by its flagship drug Velcade (bortezomib), a first-in-class molecule approved to treat multiple myeloma and mantle cell lymphoma.

"We've been impressed with the work that they have done on their own products and their deep understanding of hematologic malignancies based on all of their work with Velcade," Siegall said. "We just felt that they were the right partner for us."

Seeley noted that Takeda in May also acquired IDM Pharma, which added Mepact (mifamurtide) to Millennium's pipeline of products.

Mepact is approved in Europe to treat nonmetastatic osteosarcoma, or malignant bone cancer, following surgical removal of the tumor in children, adolescents and young adults. Millennium plans to launch the drug in Europe in 2010, Seeley said.

In addition to the "good strategic fit" with Millennium, the financial terms of the collaboration were a "strong" enticement for Seattle Genetics, Siegall said.

While the $60 million in up-front cash was a "fine" sum, the company was seeking a collaboration that had "all of the other parts we wanted in there, including very strong royalties," he said.

"We wanted more on the backend of this product, because we felt that this had a high-level chance for success based on what we have seen in the clinic so far," Siegall said. "We wanted to maximize our opportunities for shareholders, and not just for shareholders in the next day. It's looking forward. And we thought the deal we constructed with Millennium did that."

Millennium will fund 50 percent of the costs associated with the joint global development program, with that firm expected to contribute at least $75 million in development funding over the first three years of the collaboration, Siegall said. Additionally, Millennium will solely be responsible for funding development activities in Japan.

"The financial terms of this collaboration will significantly offset our investment in the program and reduce our cash burn while still allowing us to retain a substantial portion of the upside of b-vedotin for Seattle Genetics," Siegall said.

Having Millennium and its parent company Takeda as partners, said Eric Dobmeier, chief business officer at Seattle Genetics, also will help his firm in Asia and South America and other major world markets "that alone we would have had a difficult time penetrating in the near term."