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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
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, Washington 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 each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001SGENThe Nasdaq Stock Market LLC
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, 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 ☒  Accelerated filer ☐
Non-accelerated filer ☐   Smaller reporting company ☐
Emerging growth company ☐   
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐ No  ☒
As of October 27, 2023, there were 188,662,672 shares of the registrant’s common stock outstanding.

Seagen Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2023
INDEX


2
PART I. FINANCIAL INFORMATION
Item 1.    Condensed Consolidated Financial Statements
Seagen Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value)
September 30, 2023December 31, 2022
Assets
Current assets:
Cash and cash equivalents$428,568 $319,940 
Short-term investments808,418 1,415,130 
Accounts receivable, net631,555 501,912 
Inventories531,188 427,211 
Prepaid expenses and other current assets151,864 138,340 
Total current assets2,551,593 2,802,533 
Property and equipment, net358,801 248,179 
Operating lease right-of-use assets128,861 46,738 
Intangible assets, net220,255 237,516 
Goodwill274,671 274,671 
Other non-current assets100,080 64,895 
Total assets$3,634,261 $3,674,532 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$224,813 $207,851 
Accrued liabilities and other729,903 610,553 
Total current liabilities954,716 818,404 
Long-term liabilities:
Operating lease liabilities, long-term113,487 43,474 
Other long-term liabilities15,637 8,835 
Total long-term liabilities129,124 52,309 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized; none issued
— — 
Common stock, $0.001 par value, 250,000 shares authorized; 188,628 shares issued and outstanding at September 30, 2023 and 186,559 shares issued and outstanding at December 31, 2022
189 187 
Additional paid-in capital5,302,239 4,954,469 
Accumulated other comprehensive income4,394 3,510 
Accumulated deficit(2,756,401)(2,154,347)
Total stockholders’ equity2,550,421 2,803,819 
Total liabilities and stockholders’ equity$3,634,261 $3,674,532 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3
Seagen Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(In thousands, except per share amounts)
 Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Revenues:
Net product sales$570,729 $428,089 $1,583,343 $1,242,889 
Royalty revenues63,561 43,904 144,927 111,194 
Collaboration and license agreement revenues14,360 38,307 43,931 80,179 
Total revenues648,650 510,300 1,772,201 1,434,262 
Costs and expenses:
Cost of sales165,254 108,122 457,783 301,848 
Research and development449,047 384,605 1,204,930 986,518 
Selling, general and administrative265,687 210,378 746,060 604,862 
Total costs and expenses879,988 703,105 2,408,773 1,893,228 
Loss from operations(231,338)(192,805)(636,572)(458,966)
Investment and other income, net14,978 4,278 41,463 479 
Loss before income taxes(216,360)(188,527)(595,109)(458,487)
 (Benefit) provision for income taxes(571)2,289 6,945 3,650 
Net loss$(215,789)$(190,816)$(602,054)$(462,137)
Net loss per share - basic and diluted$(1.15)$(1.03)$(3.21)$(2.51)
Shares used in computation of per share amounts - basic and diluted188,135 184,792 187,532 184,199 
Comprehensive loss:
Net loss$(215,789)$(190,816)$(602,054)$(462,137)
Other comprehensive income:
Unrealized gain (loss) on securities available-for-sale, net of tax 97 (875)1,639 (4,472)
Foreign currency translation gain (loss)189 3,363 (755)6,288 
Total other comprehensive income286 2,488 884 1,816 
Comprehensive loss$(215,503)$(188,328)$(601,170)$(460,321)
The accompanying notes are an integral part of these condensed consolidated financial statements.

4
Seagen Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands)
Common stock
SharesAmountAdditional
paid-in capital		Accumulated other comprehensive incomeAccumulated deficitTotal stockholders’ equity
Balances as of December 31, 2021183,381 $183 $4,607,816 $1,179 $(1,544,039)$3,065,139 
Net loss— — — — (136,494)(136,494)
Other comprehensive loss— — — (755)— (755)
Issuance of common stock for stock option exercises and employee stock purchase plan463 1 26,663 — — 26,664 
Restricted stock vested during the period, net
48 — — — — — 
Share-based compensation— — 43,913 — — 43,913 
Balances as of March 31, 2022183,892 184 4,678,392 424 (1,680,533)2,998,467 
Net loss— — — — (134,827)(134,827)
Other comprehensive income— — — 83 — 83 
Issuance of common stock for stock option exercises and employee stock purchase plan298 — 14,960 — — 14,960 
Restricted stock vested during the period, net
179 — — — — — 
Share-based compensation— — 54,129 — — 54,129 
Balances as of June 30, 2022184,369 $184 $4,747,481 $507 $(1,815,360)$2,932,812 
Net loss— — — — (190,816)(190,816)
Other comprehensive income— — — 2,488 — 2,488 
Issuance of common stock for stock option exercises and employee stock purchase plan263 — 18,388 — — 18,388 
Restricted stock vested during the period, net
602 1 — — — 1 
Share-based compensation— — 58,938 — — 58,938 
Balances as of September 30, 2022185,234 $185 $4,824,807 $2,995 $(2,006,176)$2,821,811 
Balances as of December 31, 2022186,559 $187 $4,954,469 $3,510 $(2,154,347)$2,803,819 
Net loss— — — — (174,737)(174,737)
Other comprehensive income— — — 198 — 198 
Issuance of common stock for stock option exercises and employee stock purchase plan569 — 42,240 — — 42,240 
Restricted stock vested during the period, net
223 — — — — — 
Shares withheld for tax withholdings during the period(62)— (12,303)— — (12,303)
Share-based compensation— — 63,939 — — 63,939 
Balances as of March 31, 2023187,289 187 5,048,345 3,708 (2,329,084)2,723,156 
Net loss— — — — (211,528)(211,528)
Other comprehensive income— — — 400 — 400 
Issuance of common stock for stock option exercises and employee stock purchase plan212 1 13,814 — — 13,815 
Restricted stock vested during the period, net
171 — — — 
Share-based compensation— — 93,216 — — 93,216 
Balances as of June 30, 2023187,672 188 5,155,375 4,108 (2,540,612)2,619,059 
Net loss— — — — (215,789)(215,789)
Other comprehensive income— — — 286 — 286 
Issuance of common stock for stock option exercises and employee stock purchase plan160 15,520 — — 15,520 
Restricted stock vested during the period, net
796 1 1 — — 2 
Share-based compensation— — 131,343 — — 131,343 
Balances as of September 30, 2023188,628 189 5,302,239 4,394 (2,756,401)2,550,421 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Seagen Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 Nine Months Ended September 30,
 20232022
Operating activities:
Net loss$(602,054)$(462,137)
Adjustments to reconcile net loss to net cash used by operating activities
Share-based compensation288,498 156,980 
Depreciation38,056 34,642 
Amortization of intangible assets17,261 17,261 
Amortization of right-of-use assets
11,339 9,441 
Amortization of premiums, accretion of discounts, and (gains) losses on debt securities
(34,333)(1,129)
Losses on equity securities2,750 9,747 
Deferred income taxes835 (221)
Inventory write-off46,524 — 
Changes in operating assets and liabilities
Accounts receivable, net(129,643)(97,499)
Inventories(150,501)(164,307)
Prepaid expenses and other assets(53,186)(11,300)
Lease liability(10,257)(11,842)
Other liabilities114,000 146,053 
Net cash used by operating activities(460,711)(374,311)
Investing activities:
Purchases of securities(1,699,316)(2,060,242)
Proceeds from maturities of securities2,342,000 2,391,000 
Payments for lessor-owned assets(2,954)(17,936)
Purchases of property and equipment(131,815)(48,095)
Net cash provided by investing activities507,915 264,727 
Financing activities:
Proceeds from exercise of stock options and employee stock purchase plan71,577 60,013 
Employee taxes paid related to net share settlement of stock-based awards(12,303)— 
Net cash provided by financing activities59,274 60,013 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(804)(6,893)
Net increase (decrease) in cash, cash equivalents, and restricted cash105,674 (56,464)
Cash, cash equivalents, and restricted cash at beginning of period323,486 424,834 
Cash, cash equivalents, and restricted cash at end of period$429,160 $368,370 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6
Seagen Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
Pending Transaction with Pfizer
In March 2023, we entered into a definitive merger agreement, or the Merger Agreement, under which, on the terms and subject to the conditions thereof, Pfizer Inc., or Pfizer, will acquire Seagen Inc., or Seagen, for $229 in cash per Seagen share for a total enterprise value of $43 billion. The companies seek to accelerate the next generation of cancer breakthroughs and bring new solutions to patients by combining the power of Seagen’s ADC technology with the scale and strength of Pfizer’s capabilities and expertise. On May 30, 2023, our shareholders approved a proposal to adopt the Merger Agreement. However, the closing of the transaction, which we refer to herein as the Pfizer Merger, remains subject to fulfillment of customary closing conditions, including the receipt of required regulatory approvals. In this regard, on June 1, 2023, we and Pfizer referred the Pfizer Merger to the European Commission, or the EC, for review under Article 4(5) of the EU Merger Regulation. On June 23, 2023, the EC accepted jurisdiction as a result of such referral and receipt of approval from the EC for the Pfizer Merger became a condition for the closing of the Pfizer Merger. On October 19, 2023, the EC approved the Pfizer merger unconditionally pursuant to Article 6(1)b of the EU Merger Regulation. Additionally, on July 14, 2023, we and Pfizer each received a request for additional information and documentary materials, or a Second Request, from the Federal Trade Commission, or the FTC, in connection with the FTC’s review of the Pfizer Merger. The effect of a Second Request is to extend the waiting period imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or the HSR Act, until 30 days after Seagen and Pfizer each have substantially complied with the Second Request issued to it, unless that period is terminated sooner by the FTC. Completion of the Pfizer Merger remains subject to the expiration or termination of the waiting period under the HSR Act and the satisfaction or waiver of the other closing conditions specified in the Merger Agreement.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements reflect the accounts of Seagen Inc. and its wholly-owned subsidiaries (collectively “Seagen,” the “Company,” “we,” “our,” or “us”). All intercompany transactions and balances have been eliminated upon consolidation. Management has determined that we operate in one segment: the development and sale of pharmaceutical products on our own behalf or in collaboration with others. Substantially all of our assets and revenues are related to operations in the U.S.; however, we have multiple subsidiaries in foreign jurisdictions, including several subsidiaries in Europe.
The condensed consolidated balance sheet data as of December 31, 2022 were derived from the audited consolidated financial statements not included in this quarterly report on Form 10-Q. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC, and generally accepted accounting principles in the United States of America, or GAAP, for unaudited condensed consolidated financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments that, in the opinion of management, are necessary for a fair statement of our financial position and results of our operations as of and for the periods presented.
These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC.
The preparation of financial statements in accordance with GAAP requires us to make estimates, assumptions, and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The results of our operations for the three and nine month periods ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year or any other interim period.
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Non-cash activities
We had $53.3 million and $20.1 million of accrued capital expenditures as of September 30, 2023 and December 31, 2022, respectively. Accrued capital expenditures are treated as a non-cash investing activity and, accordingly, have not been included in the condensed consolidated statement of cash flows until such amounts have been paid in cash. We recorded $93.5 million and $0.9 million right-of-use assets during the nine months ended September 30, 2023 and 2022, respectively, and lease liabilities of $75.3 million and $0.5 million during the nine months ended September 30, 2023 and 2022, respectively.
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.
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 September 30, 2023 and December 31, 2022, were $0.0 million and $5.2 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.
Restricted Cash
As of September 30, 2023, we had $0.6 million cash held in escrow restricted by a contractual agreement related to our Everett, Washington building construction project. The restricted cash was recorded in prepaid expenses and other current assets in the condensed consolidated balance sheet. We determine classification based on the expected duration of the restriction.
Our total cash, cash equivalents, and restricted cash, as presented in the condensed consolidated statements of cash flows, was as follows:
(dollars in thousands)September 30, 2023December 31, 2022
Cash and cash equivalents$428,568 $319,940 
Restricted cash included in prepaid expenses and other current assets592 3,546 
Total cash, cash equivalents, and restricted cash as presented in the condensed consolidated statements of cash flows$429,160 $323,486 
Intangible assets, net
Our intangible assets are primarily comprised of acquired TUKYSA technology. The following table presents the balances of our finite-lived intangible assets for the periods presented:
(dollars in thousands)September 30, 2023December 31, 2022
Gross carrying value$305,650 $305,650 
Less: accumulated amortization(85,395)(68,134)
Total$220,255 $237,516 
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The following table presents our amortization expense related to acquired TUKYSA technology costs, included in cost of sales in our condensed consolidated statements of comprehensive loss, for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2023202220232022
Amortization expense$5,817 $5,817 $17,261 $17,261 
The weighted average remaining useful life of our finite-lived intangible assets was approximately 10 years as of September 30, 2023, and estimated future amortization expense related to acquired TUKYSA is $5.8 million for the three months ending December 31, 2023, and TUKYSA technology costs is $23.1 million for each of the years ending December 31, 2024 through December 31, 2028.
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, eligible customers receive an applicable discount which is processed through the distributor as 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 our patient assistance program, 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.
Revenue recognition - Royalty revenues
Royalty revenues primarily reflect amounts earned under the ADCETRIS collaboration with an affiliate of 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.
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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 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.
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.
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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.
In September 2023, we entered into a research and license agreement under which we owed an upfront payment of $60.0 million that was recorded in accounts payable as of September 30, 2023 and paid in October 2023. The agreement includes options to license technologies and contains contingent research, development, regulatory and commercial milestone payments potentially totaling up to $3.4 billion. The substantial majority of these contingent payments are dependent upon, among other things, our exercise of the options and future product sales. The agreement also includes mid-single to low double digit tiered royalties on future sales and the licensor retains an option for U.S. profit sharing and co-promotion on up to two products.
Recent Accounting Pronouncements
We reviewed recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a material impact on our condensed consolidated financial statements.

2. Revenue from contracts with customers
The following table presents our disaggregated revenue for the periods presented.
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2023202220232022
ADCETRIS$246,071 $218,521 $750,986 $601,449 
PADCEV199,516 105,330 479,452 329,114 
TUKYSA102,071 87,771 288,651 267,235 
TIVDAK23,071 16,467 64,254 45,091 
Net product sales$570,729 $428,089 $1,583,343 $1,242,889 
Royalty revenues$63,561 $43,904 $144,927 $111,194 
Collaboration and license agreement revenues$14,360 $38,307 $43,931 $80,179 
Total revenues$648,650 $510,300 $1,772,201 $1,434,262 

3. Leases
We have operating leases for our office and laboratory facilities with terms that expire from 2023 through 2042. We recorded $93.5 million and $0.9 million right-of-use assets during the nine months ended September 30, 2023 and 2022, respectively, and lease liabilities of $75.3 million and $0.5 million during the nine months ended September 30, 2023 and 2022, 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 September 30, 2023.
In June 2021, we entered into a lease agreement for an approximately 258,000 square foot 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 commenced in January 2023 when construction and delivery of the building shell and related improvements by the landlord were substantially completed, and we recorded a lease liability and right-of-use assets on our condensed consolidated balance sheet. 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.
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Supplemental operating lease information was as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2023202220232022
Operating lease cost$5,514 $3,682 $16,426 $11,824 
Variable lease cost1,307 1,039 3,870 3,360 
Total lease cost$6,821 $4,721 $20,296 $15,184 
Cash paid for amounts included in measurement of lease liabilities$5,307 $4,089 $14,215 $12,838 
As of September 30,
20232022
Weighted average remaining lease term11.2 years5.4 years
Weighted average discount rate6.9 %5.0 %
Operating lease liabilities were recorded in the following captions of our condensed consolidated balance sheets as follows:
(dollars in thousands)September 30, 2023December 31, 2022
Accrued liabilities and other$11,089 $14,517 
Operating lease liabilities, long-term113,487 43,474 
Total$124,576 $57,991 

4. Net loss per share
Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of common shares and dilutive potential 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.
We excluded the potential shares of common stock from the computation of diluted net 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:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2023202220232022
Stock options and RSUs9,000 9,948 8,699 10,029 

5. Fair value
We have certain assets that are measured at fair value on a recurring basis according to a fair value hierarchy that prioritizes the inputs, assumptions and valuation techniques used to measure fair value. The three levels of the fair value hierarchy are:
Level 1:  Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:  Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3:  Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The determination of a financial instrument’s level within the fair value hierarchy is based on an assessment of the lowest level of any input that is significant to the fair value measurement. We consider observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
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The fair value hierarchy of assets carried at fair value and measured on a recurring basis was as follows: 
 Fair value measurement using:
(dollars in thousands)Quoted prices
in active
markets for
identical assets
(Level 1)		Other
observable
inputs
(Level 2)		Significant
unobservable
inputs
(Level 3)		Total
September 30, 2023
Short-term investments—U.S. Treasury securities$808,418 $— $— $808,418 
Other non-current assets—equity securities1,104 — — 1,104 
Total$809,522 $— $— $809,522 
December 31, 2022
Short-term investments—U.S. Treasury securities$1,415,130 $— $— $1,415,130 
Other non-current assets—equity securities3,854 — — 3,854 
Total$1,418,984 $— $— $1,418,984 
Our short-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 three and nine months ended September 30, 2023 and 2022, 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 September 30, 2023 or December 31, 2022.
Our debt securities consisted of the following:
(dollars in thousands)Amortized
cost		Gross
unrealized
gains		Gross
unrealized
losses		Fair
value
September 30, 2023
U.S. Treasury securities$808,366 $67 $(15)$808,418 
Contractual maturities (at date of purchase):
Due in one year or less$808,366 $808,418 
December 31, 2022
U.S. Treasury securities$1,416,717 $96 $(1,683)$1,415,130 
Contractual maturities (at date of purchase):
Due in one year or less$1,400,852 $1,399,382 
Due in one to two years15,865 15,748 
Total$1,416,717 $1,415,130 

6. Investment and other income, net
Investment and other income, net consisted of the following:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2023202220232022
Gain (loss) on equity securities$491 $(2,669)$(2,750)$(9,747)
Investment and other income, net14,487 6,947 44,213 10,226 
Total investment and other income, net$14,978 $4,278 $41,463 $479 
Gain (loss) on equity securities includes the realized and unrealized holding gains and losses on our equity securities. At times, we hold equity investments in certain companies acquired in relation to a strategic partnership. Shares held at the end of reporting periods are marked to market in our condensed consolidated financial statements, which can result in unrealized gains and losses.

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7. Inventories
Inventories consisted of the following:
(dollars in thousands)September 30, 2023December 31, 2022
Raw materials$12,845 $14,916 
Work in process479,584 357,275 
Finished goods38,759 55,020 
Total$531,188 $427,211 
We capitalize our commercial inventory costs. Work in process represents inventory at various stages of the production process, which includes costs for materials, labor, and overhead applied during the production process. 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. During the nine months ended September 30, 2023, we recorded a $47 million inventory write-off related to in-process production of one of our products that did not meet a release specification that was updated in June 2023.

8. Accrued liabilities
Accrued liabilities consisted of the following: 
(dollars in thousands)September 30, 2023December 31, 2022
Clinical trial and related costs$222,488 $194,006 
Employee compensation and benefits212,442 175,506 
Gross-to-net deductions and third-party royalties153,266 119,289 
Acquisition related expenses27,445 — 
Other114,262 121,752 
Total$729,903 $610,553 
We have incurred approximately $40 million of acquisition related expenses in connection with the pending merger with Pfizer for the nine months ended September 30, 2023, with $27 million remaining in accrued liabilities.

9. Share-based compensation
The following table presents our total share-based compensation expense for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2023202220232022
Research and development$70,062 $31,328 $149,974 $77,850 
Selling, general and administrative61,281 27,610 138,524 79,130 
Total share-based compensation expense$131,343 $58,938 $288,498 $156,980 
During the nine months ended September 30, 2023, we granted retention awards of approximately $280 million in the form of cash and RSUs to incentivize certain employees to remain employed at the company during the pendency of the Pfizer Merger and following the closing of the transaction. The awards consist of 20% in the form of cash that vests on the 9-month anniversary of the grant, 30% in the form of RSUs that vest on the 18-month anniversary of the grant, 25% in the form of RSUs that vest on the 24-month anniversary of the grant, and 25% in the form of RSUs that vest on the 30-month anniversary of the grant.
As of September 30, 2023, there was $545.3 million of unrecognized compensation cost related to unvested options including options subject to market-based performance metrics, and restricted stock unit awards, excluding our performance-based RSUs, net of forfeitures. The estimated unrecognized compensation expense related to our performance-based RSUs was approximately $48 million as of September 30, 2023.

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10. Income taxes
For the three and nine months ended September 30, 2023, we had taxable profits in the U.S. as a result of amendments to IRC Section 174, which took effect January 1, 2022 pursuant to the 2017 Tax Cuts and Jobs Act. For the three months ended September 30, 2023, we recorded an income tax benefit of $0.6 million, primarily related to higher forecasted 2023 book loss, decreasing provision for income taxes. For the nine months ended September 30, 2023, we recorded an income tax provision of $6.9 million primarily related to estimated state tax liabilities for which there were limitations on the use of existing state tax carryforwards. We had existing federal tax carryforwards sufficient to offset most of the federal liability. Our income tax provision also reflected taxable profits in foreign jurisdictions. Our effective tax rate for the three and nine months ended September 30, 2023 of approximately (0.3%) and 1.2%, respectively, differed from the federal statutory rate primarily because of changes in the valuation allowance against substantially all of our deferred tax assets.
For the three and nine months ended September 30, 2022, we had taxable profits in the U.S. as a result of amendments to IRC Section 174, which took effect January 1, 2022 pursuant to the 2017 Tax Cuts and Jobs Act. We recorded an income tax provision of $2.3 million and $3.6 million for the three and nine months ended September 30, 2022, respectively, primarily related to estimated state tax liabilities for which there were limitations on the use of existing state tax carryforwards. We had existing federal tax carryforwards sufficient to offset any federal liability. Our income tax provision also reflected taxable profits in foreign jurisdictions. For the three and nine months ended September 30, 2022, our effective tax rate of approximately 1.2% and 0.8%, respectively, differed from the federal statutory rate primarily because we have provided a valuation allowance against substantially all our deferred tax assets.

11. Legal matters
From time to time, we are involved in legal matters, including the disputes below. As a result of these disputes, we have incurred and will continue to incur litigation expenses.
Dispute over ownership of intellectual property
We have been in a dispute with Daiichi Sankyo Co. Ltd., or Daiichi Sankyo, regarding the ownership of certain technology used by Daiichi Sankyo in its cancer drug Enhertu® (fam-trastuzumab deruxtecan-nxki) 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 contended, was assigned to us under the terms of a 2008 collaboration agreement between us and Daiichi Sankyo, or the Daiichi Sankyo Collaboration Agreement.
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.
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 and April 2022. On August 12, 2022, the arbitrator ruled in favor of Daiichi Sankyo, citing statute of limitations and disagreement with us on the interpretation of the contract. On November 10, 2022, we filed a motion to vacate the arbitration award in the U.S. District Court for the Western District of Washington, and that action has been stayed pending a final award in the arbitration.
The Daiichi Sankyo Collaboration Agreement provides that judgment rendered by an arbitrator shall include costs of arbitration, reasonable attorneys’ fees and reasonable costs for expert and other witnesses. On September 14, 2022, Daiichi Sankyo submitted a petition for approximately $58 million for reimbursement of its legal fees and costs associated with the arbitration. We filed oppositions to Daiichi Sankyo’s request on October 12, 2022 and May 23, 2023. The arbitrator held a hearing on Daiichi Sankyo’s fee request on September 15, 2023.
While we oppose any fees being awarded to Daiichi Sankyo, a liability between approximately $14 million and $58 million is reasonably estimable. An estimate of our liability for these fees towards the low end of the range has been recorded in accrued liabilities in our condensed consolidated financial statements. It is reasonably possible the arbitrator will render an award pursuant to Daiichi Sankyo’s request that is different from what we have accrued or estimated and that we will need to adjust our estimate in future periods pursuant to the arbitrator’s award.
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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. The remedies sought in this action include, 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. On July 27, 2021, AstraZeneca Pharmaceuticals LP, or AstraZeneca moved to intervene as defendants. The court granted AstraZeneca’s motion to intervene on July 28, 2021.
Daiichi Sankyo (as well as Daiichi Sankyo, Inc. and 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 and Trademark Office, or USPTO, seeking to have claims of the ’039 Patent cancelled as unpatentable. On June 24, 2021, the USPTO issued a decision denying both petitions for post-grant review. On April 7, 2022, the USPTO granted a request on rehearing and instituted two post-grant review proceedings, but on July 15, 2022, the USPTO issued a new decision denying post-grant review of the claims asserted in the patent infringement action. On February 7, 2023, in response to Daiichi Sankyo and AstraZeneca’s second request for rehearing of the denial of the post-grant review to the USPTO and for Precedential Opinion Panel, or POP, review, the Precedential Opinion Panel issued an order denying the request for POP review but directing the USPTO panel evaluating the second rehearing request to make an explicit finding using its own discretion as to whether the post-grant review petition presents a “compelling” showing of invalidity as part of its ruling on the pending second rehearing request. The panel was also directed to rule on the second rehearing request within two weeks from the POP order. On February 14, 2023, the panel decided to institute the post-grant review of the claims of the ’039 Patent asserted in the patent infringement action. The panel held oral argument on Daiichi Sankyo and AstraZeneca’s petition for post-grant review on August 24, 2023. We expect the panel to issue a ruling by February 14, 2024.
On April 8, 2022, a jury in the United States District Court for the Eastern District of Texas found that Daiichi Sankyo willfully infringed the asserted claims of the ’039 Patent with its Enhertu product, and also found that the asserted claims were not invalid. The jury further awarded damages of $41.8 million for infringement from October 20, 2020 through March 31, 2022. The court also denied Daiichi Sankyo’s claim that the ’039 Patent should be unenforceable under the equitable theory of prosecution laches, entered judgment in favor of us based on the jury’s verdict that Daiichi Sankyo willfully infringed the ’039 Patent consisting of pre-trial damages in the sum of $41.8 million, and awarded us pre- and post-trial interest and costs. On August 21, 2023, the court denied Daiichi Sankyo and AstraZeneca’s motion for a new trial and renewed motions for judgment as a matter of law on invalidity and non-infringement, and granted our request for an ongoing royalty on Daiichi Sankyo’s future sales of Enhertu in the United States through the current expiration date of the ’039 Patent. On September 18, 2023, Daiichi Sankyo and AstraZeneca filed a motion to amend the final judgment to clarify the court’s order regarding the ongoing royalty granted in our favor. On October 17, 2023, the court granted in part Daiichi Sankyo and AstraZeneca’s motion and issued an amended final judgment, which provides for an ongoing 8% royalty on Daiichi Sankyo’s future sales of Enhertu in the United States by its subsidiary Daiichi Sankyo, Inc. through November 4, 2024.
On September 20, 2023, Daiichi Sankyo and AstraZeneca filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. The appeal was deactivated on September 26, 2023 due to Daiichi Sankyo and AstraZeneca’s pending motion to amend the judgment. We anticipate that the appeal will be reactivated at some point in light of the resolution of Daiichi Sankyo and AstraZeneca’s motion.
Pursuant to ASC 450, awards of this nature must be either realized or realizable to be reflected in the company’s financial statements. No amounts related to these patent infringement matters have been reflected in our condensed consolidated financial statements as of September 30, 2023.
PADCEV product liability litigation
On March 14, 2023, a purported class action was filed in the United States District Court for the Central District of California against us, Astellas and Agensys, Inc., alleging that the defendants failed to warn of side effects to the skin that can occur when taking PADCEV. The complaint alleges claims under strict liability, negligence and fraud, and seeks damages, including punitive damages, interest, attorneys’ fees and costs. We intend to vigorously defend against these claims. No amounts related to these matters have been reflected in our condensed consolidated financial statements as of September 30, 2023.
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Litigation related to the Pfizer Merger
Six lawsuits were filed by purported Seagen stockholders in connection with the Pfizer Merger. The complaints alleged, among other things, that certain disclosures in the preliminary proxy statement we filed on April 14, 2023 or definitive proxy statement we filed on April 24, 2023 in connection with the Pfizer Merger were materially incomplete and misleading. Four actions, captioned O’Dell v. Seagen Inc., et al., No. 1:23-cv-03254 (Apr. 19, 2023), Boyd v. Seagen Inc., et al., No. 1:23-cv-03309 (Apr. 20, 2023), Wang v. Seagen Inc., et al., No. 1:23-cv-03302 (Apr. 20, 2023), and Ober v. Seagen Inc., et al., No. 1:23-cv-03378 (Apr. 21, 2023), were filed in the United States District Court for the Southern District of New York; one action, captioned McDaniel v. Seagen, Inc. et al., No. 1:23-cv-00504 (May 8, 2023), was filed in the United States District Court for the District of Delaware; and one action, captioned Nicosia v. Baker et al., No. 23-2-03250-31 (May 2, 2023), was filed in the Superior Court of the State of Washington for the County of Snohomish. The six complaints included the Company and the current members of our board of directors as defendants, and the plaintiffs alleged, among other things, violations of Sections 14(a) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78n(a), 78t(a), SEC Rule 14a-9, 17 C.F.R. 240.14a-9 and 17 C.F.R. § 244.100 and, in the case of the Washington State complaint, also included Pfizer as a defendant and alleged violations of Washington State securities laws. The complaints sought, among other relief, to enjoin us from consummating the Pfizer Merger and to be awarded rescissory damages, including reasonable attorneys’ and expert fees and expenses. All of the actions were voluntarily dismissed following the publication of additional disclosures by the Company. No amounts related to these matters have been reflected in our condensed consolidated financial statements as of September 30, 2023.
We are not aware of the filing of other lawsuits challenging the Pfizer Merger or the proxy statement; however, additional lawsuits arising out of the Pfizer Merger or the related proxy statement may be filed in the future.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
As used in this Quarterly Report on Form 10-Q, “Seagen,” the “Company”, “we,” “us” and “our” refer to Seagen Inc. and its wholly-owned subsidiaries. This Quarterly Report on Form 10-Q, including 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 Quarterly Report on Form 10-Q 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 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 Quarterly Report on Form 10-Q in greater detail under the heading “Part II Item 1A—Risk Factors.” We caution investors that our business and financial performance are subject to substantial risks and uncertainties.
Overview
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 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.
Third quarter 2023 highlights and recent developments
Business Highlights
•We reported 33% growth in net product sales for the third quarter in 2023 as compared to the same period of the prior year.
•In September 2023, we published our updated annual Corporate Responsibility Report, providing highlights from our ESG (environment, social, and governance) efforts, achievements and future commitments. Highlights of the report include multiple positive clinical trial results and label expansions across our commercial portfolio, new diversity, equity and inclusion strategy, publishing our Human Rights Policy and Supplier Code of Conduct, enhancing governance programs across numerous areas including compliance and information security, and new environmental initiatives.
•The European Commission approved the acquisition of Seagen by Pfizer unconditionally pursuant to Article 6(1)b under the EU Merger Regulation on October 19, 2023. The completion of the transaction remains subject to other customary closing conditions, including the expiration or termination of the waiting period under the HSR Act relating to the consummation of the transaction, and the satisfaction or waiver of the other closing conditions specified in the Merger Agreement. As previously disclosed, on July 14, 2023, we and Pfizer each received a Second Request from the FTC in connection with the FTC’s review of the transaction. The effect of the Second Request is to extend the waiting period imposed by the HSR Act, until 30 days after we and Pfizer each have substantially complied with the applicable Second Request, unless the period is terminated sooner by the FTC. We continue to expect that the transaction will be completed in late 2023 or early 2024.
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Product and Pipeline Highlights
PADCEV
•In October 2023, data from the phase 3 EV-302 trial of PADCEV in combination with pembrolizumab were presented at the European Society for Medical Oncology Congress 2023, or ESMO, in a late-breaking oral presentation, demonstrating a 53% reduction in risk of death compared to chemotherapy in patients with previously untreated locally advanced or metastatic urothelial cancer, or la/mUC, who were eligible for cisplatin- or carboplatin-containing chemotherapy regardless of PD-L1 status. The combination improved median overall survival, or OS, by more than 15 months versus chemotherapy. OS results were consistent across all pre-defined subgroups, including cisplatin eligibility and PD-L1 expression level. The safety results in EV-302 were consistent with those previously reported with this combination in the EV-103 trial in cisplatin-ineligible patients with la/mUC. No new safety signals were identified. An extension study in China continues to enroll patients. The EV-302 trial is intended to serve as the basis for global submissions and as the confirmatory trial for the U.S. accelerated approval of this combination. We intend to submit a supplemental Biologics License Application, or sBLA, to the U.S. Food and Drug Administration, or FDA, this year.
•In October 2023, data demonstrating promising activity and a generally manageable safety profile from Cohort L of the EV-103 trial evaluating PADCEV monotherapy as perioperative treatment in cisplatin-ineligible patients with muscle-invasive bladder cancer, or MIBC, were presented at ESMO.
ADCETRIS
•In October 2023, the European Commission approved ADCETRIS in combination with chemotherapy in previously untreated CD30-positive stage III Hodgkin lymphoma, based on updated positive OS results from the Phase 3 ECHELON-1 clinical trial.
•Initial data for ADCETRIS in combination with pembrolizumab in metastatic solid tumors will be presented at the Society for Immunotherapy of Cancer, or SITC, Annual Meeting being held November 3-5, 2023.
TUKYSA
•In August 2023, we announced that the phase 3 HER2CLIMB-02 clinical trial of TUKYSA in combination with the ADC ado-trastuzumab emtansine met its primary endpoint of progression-free survival, or PFS. Patients in the trial had unresectable locally advanced or metastatic human epidermal growth factor receptor 2-positive (HER2-positive) breast cancer and had received previous treatment with a taxane and trastuzumab. OS data, a secondary endpoint, are not yet mature. Discontinuations due to adverse events were more common in the combination arm of the trial, but no new safety signals emerged for the combination.
TIVDAK
•In October 2023, data from the innovaTV 301 trial were presented in an oral session at ESMO that demonstrated a 30% reduction in risk of death in recurrent or metastatic cervical cancer patients with disease progression on or after first-line therapy, compared with chemotherapy. The safety profile of TIVDAK in innovaTV 301 was consistent with its known safety profile as presented in the U.S. prescribing information, and no new safety signals were observed. The results from innovaTV 301 are intended to serve as the confirmatory trial for the U.S. accelerated approval and support potential global regulatory applications.
Disitamab Vedotin
•In the third quarter of 2023, we initiated a phase 3 clinical trial evaluating disitamab vedotin in combination with pembrolizumab versus chemotherapy in patients with previously untreated locally advanced or metastatic HER2-positive urothelial cancer in the third quarter of 2023.
Earlier-Stage Programs
•In October 2023, initial data for SGN-B7H4V were presented at ESMO, demonstrating antitumor activity across a variety of dose levels, dose schedules and tumor types with commonly observed adverse events including peripheral neuropathy, neutropenia, diarrhea, and nausea, consistent with other ADCs.
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•We initiated a phase 1 trial for SGN-EGFRd2, a gamma delta bispecific T-cell engager for EGFR-expressing solid tumors. Year to date, we have submitted Investigational New Drug applications, or INDs, for three novel targeted cancer therapies, including SGN-EGFRd2, SGN-35T and SGN-CEACAM5C, with the goal of submitting one additional IND before year end. Preclinical data for SGN-35T, a next generation CD30-directed ADC with a novel tripeptide drug linker designed to improve the tolerability profile compared with ADCETRIS, were presented at the annual AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics in October.

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Our Medicines
Our approved medicines include the following:
Product*
Therapeutic AreaU.S. Approved Indication
Adcetris_Injection_CD30_RGB_160x51_300ppi.jpg
Hodgkin LymphomaPreviously untreated Stage III/IV classical Hodgkin lymphoma, or cHL, in combination with doxorubicin, vinblastine and dacarbazine
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
Pediatric patients 2 years and older with previously untreated high risk cHL, in combination with doxorubicin, vincristine, etoposide, prednisone, and cyclophosphamide
T-cell LymphomaPreviously 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
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
PADCEV_RM_RGB_160x85_300ppi.jpg
Urothelial Cancer
Indicated:
•as a single agent 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 platinum-containing chemotherapy, or
•are ineligible for cisplatin-containing chemotherapy and have previously received one or more prior lines of therapy.
•in combination with pembrolizumab for the treatment of adult patients with locally advanced or metastatic urothelial cancer who are not eligible for cisplatin-containing chemotherapy
TUKYSA_R_RGB_160x88_300ppi.jpg
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.

Colorectal Caner
In combination with trastuzumab for adult patients with RAS wild-type, HER2-positive unresectable or metastatic colorectal cancer that has progressed following treatment with fluoropyrimidine-, oxaliplatin- and irinotecan-based chemotherapy.

TIVDAK_Logo_US_RGB.jpg
Cervical CancerRecurrent or metastatic cervical cancer with disease progression on or after chemotherapy.
*PADCEV, TUKYSA and TIVDAK are only indicated for use in adults.


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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 FDA approval in 2011 and is now approved in a total of seven indications to treat Hodgkin lymphoma and certain T-cell lymphomas in various settings, including as frontline therapy for both adult and pediatric patients.
The most recent approval was granted in November 2022 for the treatment of pediatric patients two years and older with previously untreated high risk classical Hodgkin lymphoma, in combination with doxorubicin, vincristine, etoposide, prednisone, and cyclophosphamide. The approval resulted in a grant of pediatric exclusivity, which extends the period of U.S. market exclusivity for ADCETRIS by an additional six months. Additionally, the FDA granted Orphan Drug Exclusivity that provides seven years of market exclusivity for its recently approved indication in children with previously untreated high risk Hodgkin lymphoma.
In June 2023, the U.S. Prescribing Information for ADCETRIS was updated to include six-year OS results from the phase 3 ECHELON-1 clinical trial of ADCETRIS plus combination chemotherapy in patients with previously untreated Stage III or IV classical Hodgkin lymphoma compared to chemotherapy alone. The update was based on statistically significant 41% reduction in risk of death versus the previous standard of care in patients with frontline advanced classical Hodgkin lymphoma.
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 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 la/mUC 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 la/mUC 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.
In April 2022, the EC approved PADCEV as monotherapy for the treatment of adult patients with la/mUC who have previously received a platinum-containing chemotherapy and a PD-1/L1 inhibitor. The approval is applicable in the European Union member states, as well as Iceland, Norway and Liechtenstein.
PADCEV is also approved in other countries for previously treated la/mUC, including Brazil, Canada, Japan, Great Britain and Switzerland.
In April 2023, the FDA granted PADCEV with pembrolizumab accelerated approval in the U.S. as a combination therapy for the treatment of adult patients with la/mUC who are not eligible to receive cisplatin-containing chemotherapy. Continued approval for this indication is contingent upon verification and description of clinical benefit in the EV-302 confirmatory trial.
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 are based on product sales and costs of commercialization. In the remaining markets, the commercializing party is responsible for bearing the costs and paying 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.
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TUKYSA®
TUKYSA is an oral, small molecule tyrosine kinase inhibitor 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.
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, granted a Great Britain marketing authorization for TUKYSA.
In January 2023, TUKYSA received accelerated approval from the FDA in combination with trastuzumab for adult patients with RAS wild-type, HER2-positive unresectable or metastatic colorectal cancer that has progressed following treatment with fluoropyrimidine-, oxaliplatin- and irinotecan-based chemotherapy. The approval was based on tumor response rate and durability of response from the phase 2 MOUNTAINEER clinical trial. Continued approval for this indication may be contingent upon verification and description of clinical benefit in confirmatory trials.
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.
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 is 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 equally share all costs and profits for the product. 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, and certain territories where Zai Lab has commercialization rights, as further described below. 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.
In September 2022, we announced an exclusive collaboration and license agreement with Zai Lab for the development and commercialization of TIVDAK in mainland China, Hong Kong, Macau, and Taiwan. Under the terms of the agreement, we received an upfront fee of $30 million in October 2022, and are entitled to receive potential development, regulatory, and commercial milestone payments, and tiered royalties on net sales of TIVDAK in the Zai Lab territory. Based on our existing collaboration with Genmab, the upfront payment, milestone payments, and royalties will be equally shared with Genmab.
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Clinical Development and Regulatory 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 the ECHELON-3 clinical trial in relapsed or refractory diffuse large B-cell lymphoma. In June 2023, updated efficacy and safety results from Part C of a phase 2 single-arm trial (SGN35-027) evaluating ADCETRIS in combination with the PD-1 inhibitor nivolumab and standard chemotherapy agents doxorubicin and dacarbazine (AN+AD) for the frontline treatment of patients with early-stage classical Hodgkin lymphoma showed a high overall response rate of 98% and a 93% complete response rate. The regimen was well tolerated, with the most frequently reported treatment-related adverse events of any grade occurring in more than 30 percent of patients being nausea (65%), peripheral sensory neuropathy (47%) and fatigue (44%). 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.
Outside of the U.S., a phase 3 clinical trial from the clinical research cooperative German Hodgkin Study Group demonstrated ADCETRIS in combination with chemotherapy – a regimen called BrECADD (brentuximab vedotin [ADCETRIS], etoposide, cyclophosphamide, doxorubicin [Adriamycin], dacarbazine, and dexamethasone) – met its co-primary endpoints of non-inferior efficacy and superior tolerability versus a highly efficacious yet chemotherapy-intense treatment regimen of escalated BEACOPP (bleomycin, etoposide, doxorubicin (Adriamycin), cyclophosphamide, vincristine, procarbazine, and prednisone), which is an international standard of care in the frontline advanced classical Hodgkin lymphoma setting and commonly used in Europe. An interim analysis at 40 months showed an unprecedented 94.9% 3-year PFS for patients treated with the ADCETRIS combination of BrECADD versus 92.3% for eBEACOPP. Twelve-month post-treatment safety data were consistent with previously presented HD21 data.
PADCEV (enfortumab vedotin-ejfv)
In addition to jurisdictions where PADCEV is currently approved, applications are under review for approval in the previously treated metastatic urothelial cancer setting in other countries. 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 MIBC. In addition, we are conducting a trial in a range of other solid tumors.
PADCEV is continuing to be 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 MIBC. In April 2023, the FDA granted PADCEV with pembrolizumab accelerated approval in the U.S. as a combination therapy for the treatment of adult patients with la/mUC who are not eligible to receive cisplatin-containing chemotherapy. Continued approval for this indication is contingent upon verification and description of clinical benefit in the EV-302 confirmatory trial.
We are conducting a global, phase 3 clinical 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 la/mUC. In October 2023, data from the phase 3 EV-302 trial were presented at ESMO in a late-breaking oral presentation demonstrating the combination improved OS and PFS with statistically significant and clinically meaningful results in patients with previously untreated la/mUC. The EV-302 study met its dual primary endpoints of OS and PFS, compared to platinum and gemcitabine chemotherapy. Patients treated with PADCEV and pembrolizumab experienced: median OS of 31.5 months (95% CI: 25.4-NR) compared to 16.1 months (95% CI: 13.9-18.3) in the chemotherapy arm; significantly prolonged OS, reducing the risk of death by 53% compared to treatment with chemotherapy (Hazard Ratio [HR]=0.468; 95% Confidence Interval [CI]: 0.376-0.582; P<0.00001); median PFS of 12.5 months (95% CI: 10.4-16.6) compared to 6.3 months (95% CI: 6.2-6.5) in the chemotherapy arm; 55% reduction in the risk of cancer progression or death compared to treatment with chemotherapy (HR=0.450; 95% CI: (0.377-0.538); P<0.00001); consistent OS results across all pre-defined subgroups, including cisplatin eligibility and PD-L1 expression level. The most common (≥3%) Grade 3 or higher adverse events related to treatment with PADCEV and pembrolizumab were rash maculo-papular, hyperglycemia, neutropenia, peripheral sensory neuropathy, diarrhea, and anemia. The safety results in EV-302 were consistent with those previously reported with this combination in EV-103 in cisplatin-ineligible patients with la/mUC. No new safety signals were identified. The EV-302 trial is intended to serve as the basis for global submissions and as the confirmatory trial for the U.S. accelerated approval of this combination. We intend to submit a sBLA to the FDA this year. We have initiated an extension study in China which continues to enroll patients.
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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 clinical 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. We expect to have initial topline results in MIBC in 2025.
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. Astellas is conducting the trial and has obtained topline results in some cohorts. We and Astellas will be reviewing the results and discussing future direction. In June 2023, we reported initial data from the study at the American Society of Clinical Oncology, or ASCO, Annual Meeting that demonstrated clinically meaningful responses in patients with head and neck cancers whose disease had progressed on prior anticancer therapies. A manageable safety profile was observed, consistent with that identified in previously studied populations with advanced urothelial cancer.
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.
In August 2023, we reported that the phase 3 HER2CLIMB-02 clinical trial of TUKYSA in combination with the ADC ado-trastuzumab emtansine met its primary endpoint of PFS. Patients in the trial had unresectable locally advanced or metastatic HER2-positive breast cancer and had received previous treatment with a taxane and trastuzumab. OS data, a secondary endpoint, are not yet mature. Discontinuations due to adverse events were more common in the combination arm of the trial, but no new safety signals emerged for the combination. For this trial, we have initiated an extension study in China which continues to enroll patients.
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 clinical trial, called HER2CLIMB-04, evaluating TUKYSA in combination with trastuzumab deruxtecan in previously treated locally-advanced or metastatic HER2-positive breast cancer.
We have also initiated a phase 3 clinical 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.
In addition, we are conducting a phase 3 clinical trial, called MOUNTAINEER-03, in combination with trastuzumab and mFOLFOX6 in first-line HER2-positive metastatic colorectal cancer, which is intended to serve as a confirmatory trial for the accelerated approval in the U.S. based on the MOUNTAINEER trial and potentially support future global regulatory submissions.
In June 2023, data from a phase 2 basket study of TUKYSA and trastuzumab in previously treated HER2-positive metastatic biliary tract cancer showed clinically meaningful antitumor activity with a confirmed objective response rate of 46.7% and a median duration of response of 6.0 months. The combination was well tolerated, with the most common treatment-emergent adverse events being pyrexia (43.3%) and diarrhea (40.0%).
We also have an ongoing 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 as a potential therapy in other 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. Continued approval is contingent upon verification and description of clinical benefit in confirmatory trials. In December 2022, the NCCN Guidelines were updated elevating TIVDAK to a Category 2A Preferred Regimen for second-line or subsequent recurrent or metastatic cervical cancer.
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In October 2023, data from the innovaTV 301 trial were presented in an oral session at ESMO that demonstrated treatment with TIVDAK resulted in a statistically significant and clinically meaningful 30% reduction in the risk of death in recurrent or metastatic cervical cancer patients with disease progression on or after first-line therapy, compared with chemotherapy (HR: 0.70, 95% CI: 0.54-0.89, p=0.00381). Additionally, TIVDAK demonstrated the following results compared with chemotherapy: PFS results were statistically significant with TIVDAK, demonstrating a 33% reduction in the risk of disease worsening or death compared with chemotherapy (HR: 0.67 [95% CI, 0.54-0.82], p<0.0001);confirmed objective response rate (ORR) was also statistically significantly improved with TIVDAK (17.8%) compared with chemotherapy (5.2%); odds ratio: 4.0 [95% CI, 2.1-7.6], p<0.0001), all the complete responses were seen in the TIVDAK arm, defined as patients with no detectable evidence of a tumor over a specified time period; disease control rate (DCR), defined as the percentage of patients who achieved complete response, partial response, or stable disease, was 75.9% (95% CI, 70.1-80.0) in the TIVDAK arm compared with 58.2% (95% CI, 51.8-64.4) in the chemotherapy arm. The safety profile of TIVDAK in innovaTV 301 was consistent with its known safety profile as presented in the U.S. prescribing information, and no new safety signals were observed. The results from innovaTV 301 are intended to serve as the confirmatory trial for the U.S. accelerated approval and support potential global regulatory applications. We have initiated an extension study in China which continues to enroll patients.
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. Additionally, in June 2022, we announced interim data from the innovaTV 205 trial, which included data evaluating TIVDAK in combination with pembrolizumab in patients with recurrent or metastatic cervical cancer who have not received prior systemic therapy. This combination cohort enrolled 33 patients with recurrent or metastatic cervical cancer who had not received any prior systemic therapy. At the time of data cutoff, the confirmed objective response rate among 32 evaluable patients was 41% with 16% of patients achieving complete responses and 25% of patients achieving partial responses. Median DOR was not reached with median follow-up of 18.8 months. In this cohort, the most common TEAEs were alopecia (61%), diarrhea (55%), epistaxis (49%), conjunctivitis (45%), and nausea (46%). We reported additional data in the Journal of Clinical Oncology in August of 2023.
We are conducting a phase 2 clinical trial, called innovaTV 207, for patients with relapsed, locally advanced or metastatic solid tumors. In April 2023, data was presented at the AACR Annual Meeting from an interim analysis of the Part C portion of the innovaTV 207 phase 2 study of TIVDAK given every 2 weeks in patients with recurrent or metastatic squamous cell carcinoma of the head and neck who have progressed after prior platinum combination, immunotherapy, and targeted therapy, if eligible. Results with this regimen demonstrated encouraging preliminary antitumor activity with a confirmed overall response rate of 40% and a manageable safety profile.
Disitamab vedotin
Effective 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 clinical trial evaluating disitamab vedotin as monotherapy in previously treated HER2-expressing metastatic urothelial cancer, and we initiated a phase 3 clinical trial evaluating disitamab vedotin in combination with pembrolizumab in first-line treatment for HER2-expressing metastatic urothelial cancer in the third quarter of 2023.
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. In November 2022, we reported interim phase 1 monotherapy results for SGN-B6A at the SITC Annual Meeting. In the study, dose escalation cohorts enrolled 79 participants with metastatic or unresectable solid tumors whose disease had relapsed or was refractory to standard of care therapies and had not previously received an MMAE-containing agent or agent targeting integrin beta-6. Participants had received a median of 3 lines of therapy for metastatic disease prior to enrollment in the study. SGN-B6A demonstrated a manageable and tolerable safety profile at the explored dose levels and schedules. Intermittent dosing schedules (2Q3W, 2Q4W) are being evaluated further. The initial anti-tumor activity observed in heavily pre-treated patients is encouraging and has triggered expansion cohorts in NSCLC, or non-small cell lung cancer, HNSCC, or head and neck squamous cell cancer, and ESCC, or esophageal squamous cell cancer, which includes treatment as monotherapy and in combination with pembrolizumab which are currently ongoing. We reported additional data on the trial at the ASCO Annual Meeting which demonstrated durable responses in a heavily pretreated patient population. We are planning to initiate a phase 3 trial evaluating SGN-B6A monotherapy compared to standard of care, docetaxel, in patients with previously treated non-small cell lung cancer by year end 2023.
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We are also developing SGN-B7H4V, an ADC which we are evaluating in a phase 1 clinical trial in certain solid tumors including breast, endometrial and ovarian cancer. In October 2023, we reported initial data at ESMO demonstrating antitumor activity across doses and tumor types with commonly observed adverse events including peripheral neuropathy, neutropenia, diarrhea, and nausea, consistent with other vedotin ADCs.
In September 2022, we entered into an agreement with LAVA Therapeutics N.V., or LAVA, to develop and commercialize LAVA-1223, also known as SGN-EGFRd2, a preclinical gamma delta bispecific T-cell engager for EGFR-expressing solid tumors. We received an exclusive global license for SGN-EGFRd2 and the opportunity to exclusively negotiate rights to apply LAVA’s proprietary Gammabody™ platform on up to two additional tumor targets. We initiated a phase 1 trial for SGN-EGFRd2, a gamma delta bispecific T-cell engager for EGFR-expressing solid tumors.
In March 2022, we entered into a collaboration with Sanofi to develop and potentially commercialize multiple novel ADCs. The agreement is an exclusive collaboration that will utilize Sanofi’s proprietary monoclonal antibody technology and our proprietary ADC technology for up to three cancer targets. In April 2023, we and Sanofi presented the first preclinical data from a novel topoisomerase I inhibitor ADC targeting CEACAM5, showing potent antitumor activity in patient-derived colorectal cancer models. We submitted an IND for the initial ADC in the fourth quarter of 2023.
In January 2023, the first patient was dosed in a phase 1 trial of SGN-BB228, a CD228x4-1BB bispecific molecule, in advanced melanoma and other solid tumors.
Portfolio prioritization
We prioritize the development of assets based on a multitude of factors, including but not limited to, likelihood of technical success, clinical differentiation, potential patient and commercial opportunity, and competitive landscape. The implications of the Inflation Reduction Act of 2022, or IRA, are also factored into our analysis with the passage of that law. As a result of a recent prioritization assessment, we have decided to stop further development of SEA-TGT, SGN-ALPV and SGN-STNV. In addition, we have decided that our ECHELON-3 ADCETRIS trial in diffuse large B-cell lymphoma will no longer be considered registrational. To add to our pipeline, we have a goal of submitting INDs for four novel drug candidates in 2023 by year end. We have made IND submissions for SGN-EGFRd2, SGN-35T and SGN-CEACAM5C in the second, third and fourth quarters of 2023, respectively.
Antibody-Drug Conjugate Technology License Agreements
Genentech has received approval from the FDA for Polivy® (polatuzumab vedotin-piic), an ADC that uses our technology, to treat patients with diffuse large B-cell lymphoma. In August 2020, GSK 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 an affiliate of GSK, these events triggered milestone payments to us and we are also entitled to receive royalties on net sales of Polivy and Blenrep worldwide. In November 2022, GSK announced that it had initiated the process for withdrawal of U.S. marketing authorization for Blenrep following a request by the FDA.
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.
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Outlook
We recognize product sales revenue from ADCETRIS in the U.S. and Canada, from PADCEV in the U.S., Canada, and Latin America, from TUKYSA in the U.S., Europe and Canada, and TIVDAK in the U.S. We expect 2023 growth in net product sales of our portfolio to be primarily supported by sales volume growth and to a lesser degree price favorability. Over the past several years, we have experienced a favorable effect on gross-to-net deductions in the U.S. market associated with high inflation; however this effect might be reduced as inflation has had a recent downward trend. In addition, we experienced a reduction in diagnosis rates for the ADCETRIS frontline indications during the COVID-19 pandemic; however, recently, we believe these diagnosis rates have returned to pre-pandemic levels. We cannot predict how these diagnosis rates will trend in the future. We expect that ADCETRIS and PADCEV will remain the largest contributors to our sales growth in 2023. We expect ADCETRIS growth in 2023 compared to 2022 to be driven by continued use across its seven indications, most notably in frontline advanced Hodgkin lymphoma, despite increased competition in this setting. We expect additional impacts from increased competition in this setting from the SWOG Cancer Research Network’s S1826 clinical trial. This trial demonstrated a statistically significant improvement in PFS for Opdivo® (nivolumab) in combination with chemotherapy compared with ADCETRIS in combination with chemotherapy in the frontline classical Hodgkin lymphoma setting. We anticipate PADCEV growth in 2023 to be driven primarily by sales in its frontline la/mUC indication in the U.S, and that the rate of growth of PADCEV for its previously-treated la/mUC indications in the U.S. will decelerate in 2023 compared to 2022 after three full years in the market since PADCEV’s launch. Additionally, while growth in PADCEV sales has been primarily driven by use of checkpoint inhibitors as frontline maintenance therapy, uptake of checkpoint inhibitors in that setting has flattened, which has been limiting PADCEV’s near-term growth in its previously-treated la/mUC indications. We also expect that TUKYSA’s market position will continue to be impacted by competitive dynamics related to Enhertu’s increased use in the second line plus setting. We also expect that the competitive impact from Enhertu’s approvals in breast cancer on TUKYSA growth will decelerate in the rest of 2023.
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 additional approvals for PADCEV in the frontline la/mUC 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, including our and Astellas’ ability to successfully launch, market and commercialize PADCEV in its frontline la/mUC indication in the U.S. and Astellas’ ability to successfully launch, market and commercialize PADCEV in Japan, Europe and its other markets;
•competition from other therapies and changing market dynamics, as further described in “Risk Factors—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,” below; for example, the approval of Enhertu for second-line HER2-positive metastatic breast cancer has resulted and is expected to continue to result in increased competition for TUKYSA and we have recently seen and expect additional increased competition for ADCETRIS in the frontline advanced Hodgkin lymphoma setting;
•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 and Merck’s abilities to successfully market and commercialize TUKYSA in our respective 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 PADCEV and TUKYSA;
•future inflation levels and their impact on mandatory discounts under U.S. government programs;
•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;
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•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 confirmatory trials as a result of PADCEV’s, TUKYSA’s and TIVDAK’s accelerated approvals by the FDA, and to convert these accelerated approvals to regular approvals in the U.S.; and
•with respect to TIVDAK, the acceptance of TIVDAK and its required eye care by the medical community and patients.
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, or HHS, 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. Further, on August 16, 2022, President Biden signed the IRA, into law, which, among other things, (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered under Medicare, and subjects drug manufacturers to civil monetary penalties and a potential excise tax for offering a price that is not equal to or less than the negotiated “maximum fair price” under the law; (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation; and (iii) redesigns the Medicare Part D program, increasing manufacturer rebates within the catastrophic coverage phase. While the IRA’s drug price negotiation program is currently subject to legal challenges, it is likely that the IRA will have a significant impact on the pharmaceutical industry. 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 as our product candidates progress through clinical trials towards potential commercialization.
In connection with the pending acquisition of the Company by Pfizer, we expect to incur additional non-recurring acquisition and transaction fees, which include legal and advisory fees, and substantial acquisition-related costs, including employee retention expenses.
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 the nine months ended September 30, 2023, our total revenues increased to $1,772.2 million, compared to $1,434.3 million for the same period in 2022. This increase was primarily driven by $340.5 million or 27% higher net product sales, due to growth from our commercial portfolio.
For the nine months ended September 30, 2023, total costs and expenses increased to $2,408.8 million, compared to $1,893.2 million for the same period in 2022. The increase was due primarily to higher research and development expenses, higher cost of sales, and higher sales, general, and administrative expenses.
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As of September 30, 2023, we had $1.2 billion in cash, cash equivalents and investments and $2.6 billion in total stockholders’ equity.

Results of operations
Net product sales
 Three months ended September 30,Nine months ended September 30,
(dollars in thousands)20232022% Change20232022% Change
ADCETRIS$246,071 $218,521 13 %$750,986 $601,449 25 %
PADCEV199,516 105,330 89 %479,452 329,114 46 %
TUKYSA102,071 87,771 16 %288,651 267,235 8 %
TIVDAK23,071 16,467 40 %64,254 45,091 42 %
Net product sales$570,729 $428,089 33 %$1,583,343 $1,242,889 27 %
Our net product sales increased during the three and nine months ended September 30, 2023 as compared to the comparable periods in 2022, driven by continued commercial execution.
ADCETRIS net product sales grew primarily due to higher volume growth driven by greater use in frontline advanced Hodgkin lymphoma, despite recent increased competition in this setting. PADCEV growth was driven by use as first-line treatment for patients with locally advanced or metastatic urothelial cancer who are not eligible to receive cisplatin-containing chemotherapy following its approval for this indication in April 2023. The increase in TUKYSA net product sales reflects volume growth driven by the important role it serves in the treatment of HER2-positivive metastatic breast cancer, as well as contributions from its colorectal cancer indication. TIVDAK growth reflects continued uptake in its current indication.
We expect growth in net product sales in 2023 as compared to 2022 to be primarily supported by sales volume growth and to a lesser degree price favorability. Refer to “Overview—Outlook” above for additional information.
Gross-to-net deductions, net of related payments and credits, were as follows:
(in thousands)Rebates and
chargebacks		Distribution fees,
product returns
and other		Total
Balance as of December 31, 2022$111,251 $21,978 $133,229 
Provision related to current period sales597,440 51,790 649,230 
Adjustment for prior period sales(1,999)(2,188)(4,187)
Payments/credits for current period sales(506,615)(40,003)(546,618)
Payments/credits for prior period sales(57,154)(6,924)(64,078)
Balance as of September 30, 2023$142,923 $24,653 $167,576 
Government-mandated rebates and chargebacks are the most significant component of our total gross-to-net deductions and the discount changes over time. The most significant portion of our gross-to-net accrual balances as of September 30, 2023 and 2022 was for Medicaid rebates. We expect future gross-to-net deductions to fluctuate based on the volume of purchases eligible for government mandated discounts and rebates, as well as changes in the discount percentage which is impacted by potential future price increases, the rate of inflation, and other factors. We expect gross-to-net deductions to increase in 2023 as compared to 2022, 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 amounts from Genentech earned on net sales of Polivy® (polatuzumab vedotin) and, to a lesser extent, amounts from GlaxoSmithKline earned on net sales of Blenrep, both of which utilize technology that we have licensed to them, as well as royalties on TUKYSA sales by Merck in its territory, and royalties on disitamab vedotin sales by RemeGen in its territory.
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 Three months ended September 30,Nine months ended September 30,
(dollars in thousands)20232022% Change20232022% Change
Royalty revenues$63,561 $43,904 45 %$144,927 $111,194 30 %
Royalty revenues increased for the three and nine months ended September 30, 2023 from the comparable periods in 2022, due primarily to higher royalties from sales of Polivy by Roche and higher net product sales by our licensees in their territories driven by Takeda’s net sales growth of ADCETRIS outside the U.S. and Canada.
We expect that royalty revenues will increase in 2023 as compared to 2022 primarily due to higher royalties from anticipated growth of licensees’ net product sales, including sales of ADCETRIS by Takeda in its territory along with contributions from sales of Polivy by Roche.

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.
 Three months ended September 30,Nine months ended September 30,
(dollars in thousands)20232022% Change20232022% Change
Collaboration and license agreement revenues$14,360 $38,307 (63)%$43,931 $80,179 (45)%
Collaboration and license agreement revenues decreased for the three months ended September 30, 2023 compared to the comparable period in 2022, due primarily to a prior period upfront license payment of $30.0 million received from Zai Lab. The decrease in collaboration and license agreement revenues for the nine months ended September 30, 2023 compared to the comparable period in 2022 was due to the prior period upfront license payment from Zai Lab and the prior period milestone payment received from AbbVie, partially offset by $10.1 million incremental Astellas collaboration revenue.
Collaboration and license agreement revenue is highly dependent on progress by our collaboration partners and new collaborations that are difficult to predict. We expect that collaboration and license agreements revenues will decrease in 2023 as compared to 2022. 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.

Collaboration and license agreements
Takeda ADCETRIS collaboration
We have a collaboration 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 licensed 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.
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Astellas PADCEV collaboration
We have a collaboration agreement with Agensys, Inc., which subsequently became an affiliate of Astellas, to jointly research, develop and commercialize ADCs for the treatment of several types of cancer. 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 initial 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, we are in the process of establishing a second source manufacturing supply chain, through a combination of internal manufacturing capacity and third parties. In this regard, our manufacturing facility in Bothell, Washington is used to support commercial production of PADCEV antibody.
Genmab TIVDAK collaborations
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 sharing all development costs for TIVDAK. TIVDAK was approved by FDA in September 2021. 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 are each responsible for maintaining 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, and certain territories where Zai Lab has commercialization rights, as further described below. In Europe, China, and Japan, we and Genmab equally share 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.
In September 2022, we announced an exclusive collaboration and license agreement with Zai Lab for the development and commercialization of TIVDAK in mainland China, Hong Kong, Macau, and Taiwan. Under the terms of the agreement, we received an upfront payment of $30.0 million in October 2022, and are entitled to receive potential future development, regulatory, and commercial milestone payments, and tiered royalties on net sales of TIVDAK in the Zai Lab territory. Based on our existing collaboration with Genmab, the upfront payment, milestone payments, and royalties will be equally shared with Genmab.
Merck LV collaboration
In 2020, we entered into a license and collaboration agreement, or the LV Agreement, with a subsidiary of Merck. Under the terms of the LV Agreement, we granted Merck a co-exclusive worldwide development and commercialization license for ladiratuzumab vedotin, or LV, and agreed to jointly develop and commercialize LV on a worldwide basis. We received an upfront cash payment and were eligible to receive milestone payments upon the initiation of certain clinical trials, regulatory approval in certain major markets and achievement of specified annual global net sales thresholds of LV. In addition, the agreement provided that each company is responsible for 50% of global costs to develop and commercialize LV and will receive 50% of potential future profits.
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. In the second quarter of 2023, we decided to deprioritize the LV program. We and Merck agreed to terminate the LV Agreement, effective as of October 14, 2023.
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Merck TUKYSA collaboration
In 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 are eligible to receive progress-dependent milestone payments, and are entitled to receive tiered royalties on sales of TUKYSA by Merck that begin in the low twenty percent range and escalate based on sales volume by Merck in its territory.
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 $85.0 million 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 condensed 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 condensed consolidated statements of comprehensive loss. As of September 30, 2023 and December 31, 2022, $0.0 million and $15.5 million was recorded as the remaining co-development liability, respectively.
RemeGen disitamab vedotin license agreement
Effective 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 new drug application 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 may 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 technology collaboration and license agreements
We have other collaboration and license agreements for our 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.
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 license and collaboration agreements.

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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.
 Three months ended September 30,Nine months ended September 30,
(dollars in thousands)20232022% Change20232022% Change
Cost of sales$165,254 $108,122 53 %$457,783 $301,848 52 %
Cost of sales increased for the three and nine months ended September 30, 2023 from the comparable periods in 2022, reflecting higher sales of our medicines resulting in higher gross profit sharing owed to our collaboration partners, and higher product costs from sales volume increases. In addition, cost of sales in the nine months ended September 30, 2023 included a $47 million inventory write-off related to in-process production of one of our products that did not meet a release specification that was updated in June 2023. This inventory adjustment and new release specification are not expected to impact availability of product supply required to meet current or future demand. The gross profit share to collaborators totaled $103.1 million and $249.0 million for the three and nine months ended September 30, 2023, respectively, as compared to $71.0 million and $189.4 million for the comparable periods in 2022.
We expect cost of sales to increase in 2023 as compared to 2022 as a result of the net product sales growth of our marketed products, contributing to higher manufacturing costs due to sales volume increases for our products sold and higher anticipated gross profit sharing with our collaborators, as well as the inventory write-off in the second quarter of 2023.

Research and development
 Three months ended September 30,Nine months ended September 30,
(dollars in thousands)20232022% Change20232022% Change
Research and clinical development$330,354 $304,263 9 %$894,931 $766,591 17 %
Process sciences and manufacturing118,693 80,342 48 %309,999 219,927 41 %
Total research and development$449,047 $384,605 17 %$1,204,930 $986,518 22 %
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. Other research and clinical development costs grew during the three and nine months ended September 30, 2023 from the comparable periods in 2022, driven by higher employee-related costs and clinical trial costs to support our early- and late-stage pipeline of product candidates, offset in part by the $50.0 million upfront payment to LAVA Therapeutics during the comparable periods in 2022.
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 increases for the three and nine months ended September 30, 2023 from the comparable periods in 2022 primarily reflected higher employee-related costs and the timing of manufacturing costs of our product candidates for use in clinical trials.
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, 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 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.
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 Three months ended September 30,Nine months ended September 30,
(dollars in thousands)2023202220232022
TUKYSA (tucatinib)$47,699 $61,090 $144,194 $153,633 
PADCEV (enfortumab vedotin-ejfv)16,640 22,911 56,643 65,517 
ADCETRIS (brentuximab vedotin)15,706 22,249 49,403 61,116 
TIVDAK (tisotumab vedotin)12,804 12,773 36,555 31,463 
Ladiratuzumab vedotin5,559 3,463 12,005 11,206 
Disitamab vedotin
23,197 9,616 45,960 27,495 
Other clinical stage programs33,431 17,449 85,569 64,209 
Total third-party costs for clinical stage programs155,036 149,551 430,329 414,639 
Other costs, overhead, and net cost-sharing with collaborators294,011 235,054 774,601 571,879 
Total research and development$449,047 $