4. Acquisition of Cascadian

In March 2018, we acquired all issued and outstanding shares of Cascadian Therapeutics, Inc., a clinical-stage biopharmaceutical company based in Seattle, Washington, for $10.00 per share in cash, or approximately $614.1 million, which was funded by an underwritten public offering as further described in Note 6. The acquisition of Cascadian expanded our late-stage pipeline, providing global rights to tucatinib, an investigational oral tyrosine kinase inhibitor, or TKI, that was being evaluated in a phase 2 trial called HER2CLIMB for patients with HER2 positive metastatic breast cancer who have been previously treated with HER2-targeted agents, including patients with or without brain metastases.

The acquisition of Cascadian was accounted for as a business combination. During the threenine months ended March 31,September 30, 2018, we incurred $8.5 million in acquisition-related costs, which were recorded in selling, general and administrative expenses.

The purchase price allocation of the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date was as follows:

The amount allocated to in-process research and development was based on the present value of future discounted cash flows, which was based on significant estimates. These estimates included the number of potential patients and market price of a future tucatinib-based regimen, costs required to conduct clinical trials and potentially commercialize tucatinib, as well as estimates for probability of success and the discount rate. Goodwill primarily was attributed to tucatinib’s potential application in other treatment settings, intangible assets that do not qualify for separate recognition, and synergies with our existing pipeline and capabilities. Goodwill is not expected to be deductible for tax purposes.

The financial information in the table below summarizes the combined results of operations of Seattle Genetics and Cascadian on a pro forma basis for the 2018 comparative period:

5. Net loss per share

6. Common stock

7. 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:

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.

Our equity securities primarily consisted of holdings in common stock of Immunomedics, Inc., purchasedacquired in connection with a strategic collaboration with the company in 2017. The collaboration agreement with Immunomedics was subsequently terminated in 2017.

Our debt securities consisted of the following:

8. Investment and other income (loss), net

Investment and other income (loss), net consisted of the following:

Gain (loss) on equity securities includes the realized and unrealized holding gains and losses on our equity securities. Our equity securities are described in more detail in Note 7.

9. Inventories

The following table presents our inventories of ADCETRIS:

We capitalize ADCETRIS inventory costs. ADCETRIS 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. We do not capitalize manufacturing costs for any of our product candidates.

10. Legal matters

On March 8, 2018, three3 purported stockholders of Cascadian filed a Verified Complaint to Compel Inspection of Books and Records under 8 Del. C. §220 in the Delaware Court of Chancery against Cascadian, seeking to inspect books and records in order to determine whether wrongdoing or mismanagement has taken place such that it would be appropriate to file claims for breach of fiduciary duty, and to investigate the independence and disinterestedness of the former Cascadian directors with respect to the Cascadian Acquisition.our acquisition of Cascadian. We filed our answer to this complaint on March 28, 2018. On February 20, 2019, we entered into an agreement regarding production and confidentiality of books and records with plaintiffs, pursuant to which we produced relevant books and records on April 22, 2019. As a result of this lawsuit, we may incur litigation and indemnification expenses.

In addition, from time to time in the ordinary course of business we become involved in various lawsuits, claims and proceedings relating to the conduct of our business, including those pertaining to the defense and enforcement of our patent or other intellectual property rights and our contractual rights. These proceedings are costly and time consuming. Additionally, successful challenges to our patent or other intellectual property rights through these proceedings could result in a loss of rights in the relevant jurisdiction and may allow third parties to use our proprietary technologies without a license from us or our collaborators.

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Our marketed product ADCETRIS is commercially available in 72more than 70 countries including in the U.S., Canada, members of the European Union and Japan.worldwide. We commercialize ADCETRIS in the U.S. and its territories and in Canada, and we are collaboratingcollaborate with Takeda Pharmaceutical Company Limited, or Takeda, to develop and commercialize ADCETRIS on a global basis. Under this collaboration, Takeda has commercial rights in the rest of the world and pays us a royalty. ADCETRIS is approved by the U.S. Food and Drug Administration, or FDA, in six indications. For patients withIn Hodgkin lymphoma, ADCETRIS is approved as monotherapy for patients whose disease has relapsed and as consolidation therapy following prior treatment, and in combination with chemotherapy for the treatment of patients with previously untreated disease. For patients withIn T-cell lymphomas, ADCETRIS is approved as monotherapy infor patients with relapsed or refractory systemic anaplastic large cell lymphoma, or sALCL, or certain types of cutaneous T-cell lymphoma, or CTCL, or in combination with chemotherapy infor patients with previously untreated CD30-expressing peripheral T-cell lymphoma, or PTCL.

Our late-stage pipeline includes two ADCs andenfortumab vedotin, an ADC being evaluated for urothelial cancer; tucatinib, an oral tyrosine kinase inhibitor, or TKI, which is being evaluated for HER2-positive breast cancer and other solids tumors; and tisotumab vedotin an ADC being evaluated for cervical cancer and other solid tumors thattumors. These programs are in clinical trials designed to support applications for potential regulatory approvals.

In collaboration with Astellas Pharma, Inc., or Astellas, we are developing enfortumab vedotin, which is an ADC targeting Nectin-4. WeIn September 2019, the FDA accepted for filing with Priority Review the Biologics License Application, or BLA, that we and Astellas are conducting a pivotal phase 2 trial, called EV-201, evaluating single-agentsubmitted under the FDA's accelerated approval pathway for enfortumab vedotin for the treatment of patients with locally advanced or metastatic urothelial cancer who were previously treated withhave received a PD-1 inhibitor, or a programmed death-ligand 1, or PD-L1 inhibitor, including thoseand who have also been treated with a platinum-containing chemotherapy, or the first cohort, and those who have not received a platinum-containing chemotherapy and who are ineligible for cisplatin,in the neoadjuvant/adjuvant, locally advanced or metastatic setting. The enfortumab vedotin BLA is based on the second cohort.positive results from the first cohort of patients in the EV-201 pivotal phase 2 clinical trial. Under the Prescription Drug User Fee Act, or PDUFA, the FDA set a target action date of March 15, 2020. In March 2018, the FDA granted Breakthrough Therapy designation to enfortumab vedotin for patients with locally advanced or metastatic urothelial cancer who were previously treated with a checkpoint inhibitor. In March 2019, we announced positive top-line results from the first cohort of EV-201 that enrolled 128 patients who previously received both platinum-containing chemotherapy and a PD-1 or PD-L1 inhibitor. Results from the first cohort showed a 44 percent objective response rate, or ORR, per blinded independent central review. The duration of response was consistent with that recently reported in the previous phase 1 study, or EV-101. The most common treatment-related adverse events included fatigue, alopecia, decreased appetite, rash and peripheral neuropathy. Based on these results, we

We and Astellas planare continuing to submit a Biologics License Application toenroll the FDA in 2019 under the FDA's accelerated approval pathway. The second cohort of the EV-201 trial continues to enroll patients. Westudy in patients who were previously treated with a PD-1 or PD-L1 inhibitor but have not received a platinum-containing chemotherapy and who are ineligible for cisplatin.

Additionally, we and Astellas are also conducting a global, randomized phase 3 trial, called EV-301, for patients with metastatic urothelial cancer who previously received both platinum chemotherapy and a PD-1 or PD-L1 inhibitor. EV-301 is intended to

We and Astellas are also conducting a phase 1b trial, called EV-103, that is a multi-cohort, open-label trial of enfortumab vedotin called EV-103,alone or in combination with eitherthe immune therapy pembrolizumab and/or other anticancer agents aschemotherapy. The trial is evaluating safety, tolerability and activity in locally advanced and first- and second-line metastatic urothelial cancer, and was recently expanded to include muscle invasive urothelial cancer. In September 2019, initial results from the trial were presented at the European Society for Medical Oncology, or second-line treatmentESMO, 2019 Congress. Forty-five patients were evaluated for safety with the combination of enfortumab vedotin and pembrolizumab in previously untreated patients with locally advanced or metastatic urothelial cancer.cancer who were ineligible for treatment with cisplatin-based chemotherapy. The study met outcomes for safety and the data indicated that the combination of enfortumab vedotin plus pembrolizumab shrank tumors in the majority of patients, resulting in a confirmed objective response rate, or ORR, of 71 percent (95 percent Confidence Interval (CI) 55.7, 83.6). The complete response rate was 13 percent. Fifty-eight percent of patients had a partial response and 22 percent had stable disease. Ninety-one percent of responses were observed at the first assessment. Fifty-one percent of patients had an adverse event greater than or equal to Grade 3. Among these events, an increase in lipase was the most frequent (13 percent). Four patients (9 percent) discontinued treatment due to treatment-related adverse events, most commonly peripheral sensory neuropathy. There was one death deemed to be treatment-related by the investigator attributed to multiple organ dysfunction syndrome.

We are also developing tucatinib, an oral TKI targeting HER2, a growth factor receptor overexpressed in many cancers. Tucatinib is currently being evaluated as part of a combination regimen in a global randomized (2:1) pivotal trial, called HER2CLIMB. The trial is a multinational randomized (2:1), double-blind, placebo-controlled, active comparator, pivotal clinical trial comparing tucatinib in combination with trastuzumab and capecitabine compared with trastuzumab and capecitabine alone in patients with locally advanced or metastatic HER2-positive breast cancer who were previously treated with trastuzumab, pertuzumab and ado-trastuzumab emtansine, or T-DM1. The primary endpoint was progression-free survival, or PFS, per Response Evaluation Criteria in Solid Tumors, or RECIST, v1.1 as determined by blinded independent central review in the first 480 patients enrolled in the trial. HER2CLIMB enrolled a total of 612 patients to support the analyses of key secondary endpoints, including overall survival as well as PFS in patients with brain metastases at baseline. Forty-seven percent of the patients enrolled in the trial had brain metastases at the time of enrollment.

In October 2019, we initiated a phase 3 randomized pivotal trial called HER2CLIMB-02 comparing tucatinib vs. placebo, each in combination with capecitabine and trastuzumab. The trial is evaluatingT-DM1 in patients with HER2-positive metastatic breast cancer who have been previously treated with trastuzumab, pertuzumab (Perjeta®)a taxane and ado-trastuzumab emtansine, or T-DM1, (Kadcyla®), including patients with or without brain metastases. In early 2019, we announced that we achieved enrollment of 480 patients in thetrastuzumab. The trial is designed to enable analysis of theenroll approximately 460 patients. The primary endpoint of progression-free survival, or PFS,is PFS.

We are also conducting a phase 2 trial, called MOUNTAINEER, evaluating tucatinib in combination with top-line data expected to be reported in 2019. In April 2019, we reached the target enrollment of 600 patients in HER2CLIMB to support the analyses of key secondary endpoints, including overall survival, or OS, as well as PFStrastuzumab in patients with brain metastases.HER2-positive, RAS wild-type metastatic colorectal cancer after treatment with first- and second-line standard-of-care therapies. Initial results from 23 patients were presented at the ESMO 2019 Congress that demonstrated encouraging antitumor activity with an ORR of 52 percent. The median PFS was 8.1 months and the median OS was 18.7 months. The combination was generally well tolerated.

In collaboration with Genmab A/S, or Genmab, we are developing tisotumab vedotin, which is an ADC targeting tissue factor, or TF.factor. We and Genmab are conducting a pivotal phase 2 trial, called the innovaTV 204 trial, evaluating single-agent tisotumab vedotin for patients with recurrent and/or metastatic cervical cancer who have relapsed or progressed after standard of care treatment. The trial is intended to support a potential regulatory submission under the FDA's accelerated approval pathway. In March 2019, we completed enrollment in the innovaTV 204 trial. Additionally in March 2019, updated resultstrial and we anticipate reporting topline data from the phase 1/2 dose-escalation trial called innovaTV 201,in the first half of tisotumab vedotin were presented at the Society of Gynecologic Oncology, or SGO, 50th annual meeting. The data showed a 22 percent confirmed objective response rate by independent review committee and median duration of response of six months in recurrent or metastatic cervical cancer. The most common adverse events of any grade were epistaxis (51 percent), fatigue (51 percent), nausea (49 percent), conjunctivitis (42 percent) and alopecia (40 percent).2020. We are also conducting a phase 2 clinical trial called innovaTV 207 for patients with other solid tumors including colorectal, non-small cell lung, pancreatic or head and neck cancers. The trialthat is intended to inform a potential future broad development program.plans. In addition, we are conducting a phase 2 clinical trial, called innovaTV 208, for patients with platinum-resistant ovarian cancer.

We are developing ladiratuzumab vedotin, an ADC targeting LIV-1, which is currently being evaluated in phase 1 and phase 2 clinical trials both as monotherapy and in combination with other agents for patients with metastatic triple-negative breast cancer. We also are conducting a phase 2 trial evaluating ladiratuzumab vedotin as monotherapy in select solid tumors with high LIV-1 expression.

OurWe are advancing a pipeline of early-stage clinical pipeline includes SGN-CD48A, which utilizes our ADC technology, and SEA-BCMA, a monoclonal antibody utilizing our sugar-engineered antibody, or SEA, technology. In addition, we havecandidates as well as multiple preclinical and research-stage programs that employ our proprietary technologies,technologies. We have advanced several product candidates into clinical development in 2019 and we plan to submit several investigational new drug applications to the FDA in 2019. As a result of recent portfolio prioritization decisions, we are no longer developing SGN-2FF.2020.

We have collaborations for our ADC technology with a number of biotechnology and pharmaceutical companies, including AbbVie Biotechnology Ltd., or AbbVie; Astellas; Genentech, Inc., a member of the Roche Group, or Genentech; Genmab; GlaxoSmithKline LLC, or GSK; and Progenics Pharmaceuticals Inc., or Progenics. Of these collaborators, Genentech GSK and AbbVie eachGSK have ADCs using our technology in late-stage clinical trials. In December 2018, Roche submitted regulatory applications inJune 2019, Genentech received accelerated approval from the U.S. and the European Union, or EU,FDA for approval of polatuzumab vedotin, an ADC that uses our technology, to treat patients with relapsed or refractory diffuse large B-cell lymphoma. In February 2019,Under our ADC collaboration with Genentech, the FDA grantedaccelerated approval of polatuzumab vedotin priority review withtriggered a Prescription Drug User Fee Act, or PDUFA, datemilestone payment to us and we are entitled to receive royalties on net sales of August 19, 2019.polatuzumab vedotin worldwide. In addition, we have a collaboration with Unum Therapeutics, Inc., or Unum, to develop and commercialize novel antibody-coupled T-cell receptor, or ACTR, therapies incorporating our antibodies for the treatment of cancer. Unum is conducting a phase 1 trial evaluating Unum's ACTR087 drug candidate in combination with SEA-BCMA in patients with relapsed/refractory multiple myeloma.

Outlook

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, primarily as a result of activities related to the commercialization and continued development of ADCETRIS, andas well as the continued development and potential commercialization of ADCETRIS, enfortumab vedotin, tucatinib and tisotumab vedotin. Enfortumab vedotin, tucatinib, tisotumab vedotin, and our other product candidatesWe will require significant further development, financial resources and additional personnel in order to continue to advance the development of, to pursue, obtain and maintain regulatory approvals for, and to develop them into commercially viable products,potentially commercialize, enfortumab vedotin, tucatinib and tisotumab vedotin, if we are able to do so at all. Our other product candidates are in early or relatively early stages of development. In addition, we may pursue new operations or continue the expansion of our existing operations, including with respect to our plans to build a commercial infrastructure in Europe and to otherwise continue to expand our operations internationally. Our commitment of resources to the continuing development, regulatory and commercialization activities for

We recognize revenue from ADCETRIS product sales in the U.S. and Canada. Our future ADCETRIS product sales are difficult to accurately predict from period to period and are dependent on, among other things, the incidence flow of patients eligible for treatment with ADCETRIS. In this regard, our ADCETRIS product sales have varied, and may continue to vary, significantly from period to period and may be affected by a variety of factors. Such factors include the approval of ADCETRIS in additional indications, the extent to which coverage and reimbursement for ADCETRIS is available from government and other third-party payors, competition, the incidence rate of new patients in ADCETRIS’ approved indications, customer ordering patterns, physicians’ perception and adoption of ADCETRIS, the overall level of demand for ADCETRIS, and the duration of therapy for patients receiving ADCETRIS. In particular: 

We expect that amounts earned from our collaboration agreements, including royalties, will continue to be an important source of our revenues and cash flows. These revenues will be impacted by future development funding and the achievement of development, clinical and commercial success by our collaborators under our existing collaboration and license agreements, including our ADCETRIS collaboration with Takeda, as well as by entering into potential new collaboration and license agreements. 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 threenine months ended March 31,September 30, 2019, total revenues increased to $195.2$626.9 million, compared to $140.6$480.2 million for the same period in 2018. This increase was driven primarily by 42%34% higher ADCETRIS net product sales. Net product sales of ADCETRIS were $135.0increased to $461.6 million for the threenine months ended March 31,September 30, 2019, compared to $95.4$344.8 million for the same period in 2018, which increased primarily driven by recent ADCETRIS label expansions.

For the threenine months ended March 31,September 30, 2019, total costs and expenses increased to $248.8$809.0 million, compared to $234.4$649.9 million for the same period in 2018. This primarily reflected higher sales and marketing costs to support recent ADCETRIS launches, as well as higher research and development expenses for ourfrom continued investment in our late-stage pipeline, offset in part by upfront payments for in-license agreements inas well as higher sales, general and administrative costs related to our late-stage product candidates and ADCETRIS commercialization efforts. For the comparable period of 2018. Net loss for the threenine months ended

As of March 31,September 30, 2019, we had $418.3$870.3 million in cash, cash equivalents and investments and $1.3$1.8 billion in total stockholders’ equity.

Results of operations

We sell ADCETRIS in the U.S. and Canada.