Seagen (SGEN) 10-Q 30 Oct 15 2015 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Oct. 27, 2015
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2015
Document Fiscal Year Focus	2,015
Document Fiscal Period Focus	Q3
Trading Symbol	SGEN
Entity Registrant Name	SEATTLE GENETICS INC /WA
Entity Central Index Key	1,060,736
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		139,480,932

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Assets
Cash and cash equivalents	$ 614,074	$ 56,927
Short-term investments	122,380	256,486
Accounts receivable, net	63,498	39,248
Inventories	44,515	43,451
Prepaid expenses and other current assets	8,303	11,874
Total current assets	852,770	407,986
Property and equipment, net	44,679	46,129
Other non-current assets	9,891	4,850
Total assets	907,340	458,965
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities	76,756	77,681
Current portion of deferred revenue	51,505	48,212
Total current liabilities	128,261	125,893
Long-term liabilities
Deferred revenue, less current portion	78,978	117,648
Deferred rent and other long-term liabilities	3,863	4,590
Total long-term liabilities	$ 82,841	$ 122,238
Commitments and contingencies (Note 7)
Stockholders' equity
Preferred stock, $0.001 par value, 5,000 shares authorized; none issued	$ 0	$ 0
Common stock, $0.001 par value, 250,000 shares authorized; 139,462 shares issued and outstanding at September 30, 2015 and 123,973 shares issued and outstanding at December 31, 2014	139	124
Additional paid-in capital	1,598,166	1,017,182
Accumulated other comprehensive income (loss)	6	(29)
Accumulated deficit	(902,073)	(806,443)
Total stockholders' equity	696,238	210,834
Total liabilities and stockholders' equity	$ 907,340	$ 458,965

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2015	Dec. 31, 2014
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	250,000,000	250,000,000
Common stock, shares issued	139,462,000	123,973,000
Common stock, shares outstanding	139,462,000	123,973,000

Condensed Consolidated Statemen

Condensed Consolidated Statements of Comprehensive Loss - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Revenues
Net product sales	$ 59,059	$ 48,209	$ 163,040	$ 131,707
Collaboration and license agreement revenues	15,311	19,501	51,918	52,575
Royalty revenues	9,702	8,143	28,367	28,150
Total revenues	84,072	75,853	243,325	212,432
Costs and expenses
Cost of sales	6,625	4,725	17,775	12,477
Cost of royalty revenues	3,473	2,901	9,286	8,009
Research and development	70,790	58,510	219,922	166,700
Selling, general and administrative	29,684	25,342	92,148	74,885
Total costs and expenses	110,572	91,478	339,131	262,071
Loss from operations	(26,500)	(15,625)	(95,806)	(49,639)
Investment and other income, net	62	59	176	182
Net loss	$ (26,438)	$ (15,566)	$ (95,630)	$ (49,457)
Net loss per share-basic and diluted	$ (0.21)	$ (0.13)	$ (0.76)	$ (0.40)
Shares used in computation of net loss per share-basic and diluted	127,667	123,591	125,693	123,234
Comprehensive loss:
Net loss	$ (26,438)	$ (15,566)	$ (95,630)	$ (49,457)
Other comprehensive income (loss):
Foreign currency translation loss	(9)	0	(9)	0
Unrealized gain (loss) on securities available for sale	3	(255)	44	512
Total other comprehensive income (loss)	(6)	(255)	35	512
Comprehensive loss	$ (26,444)	$ (15,821)	$ (95,595)	$ (48,945)

Condensed Consolidated Stateme5

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Operating activities
Net loss	$ (95,630)	$ (49,457)
Adjustments to reconcile net loss to net cash used in operating activities
Share-based compensation	28,720	29,018
Depreciation and amortization	10,760	9,108
Amortization of premiums and accretion of discounts	1,009	665
Deferred rent and other long-term liabilities	(727)	(629)
Changes in operating assets and liabilities
Accounts receivable, net	(24,250)	(14,309)
Inventories	(1,064)	(10,468)
Prepaid expenses and other assets	2,945	(1,201)
Accounts payable and accrued liabilities	(633)	10,054
Deferred revenue	(35,377)	(11,997)
Net cash used in operating activities	(114,247)	(39,216)
Investing activities
Purchases of securities available for sale	(177,064)	(331,079)
Proceeds from maturities of securities available for sale	280,200	351,200
Proceeds from sales of securities available for sale	30,005	0
Purchases of property and equipment	(9,026)	(9,781)
Purchase of cost-method investment	(5,000)	0
Net cash provided by investing activities	119,115	10,340
Financing activities
Net proceeds from issuance of common stock	526,618	0
Proceeds from exercise of stock options and employee stock purchase plan	25,661	14,928
Net cash provided by financing activities	552,279	14,928
Net increase (decrease) in cash and cash equivalents	557,147	(13,948)
Cash and cash equivalents at beginning of period	56,927	64,116
Cash and cash equivalents at end of period	$ 614,074	$ 50,168

Summary of significant accounti

Summary of significant accounting policies	9 Months Ended
	Sep. 30, 2015
Accounting Policies [Abstract]
Summary of significant accounting policies	1. Summary of significant accounting policies Basis of presentation The accompanying unaudited condensed consolidated financial statements reflect the accounts of Seattle Genetics, Inc. and its wholly-owned subsidiaries (collectively “Seattle Genetics” or the “Company”). All significant intercompany transactions and balances have been eliminated. Management has determined that the Company operates in one segment: the development and sale of pharmaceutical products on its own behalf or in collaboration with others. Substantially all of the Company’s assets and revenues are related to operations in the United States; however, the Company also has subsidiaries in the United Kingdom, Switzerland and Canada. The condensed consolidated balance sheet data as of December 31, 2014 were derived from audited 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 which, in the opinion of management, are necessary for a fair statement of the Company’s financial position and results of its operations, as of and for the periods presented. Unless indicated otherwise, all amounts presented in financial tables are presented in thousands, except for per share and par value amounts. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The results of the Company’s operations for the three and nine month periods ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year. Non-cash investing activities The Company had $1.3 million and $1.6 million of accrued capital expenditures as of September 30, 2015 and December 31, 2014, respectively. Accrued capital expenditures have been treated as a non-cash investing activity and, accordingly, have been included in the condensed consolidated statements of cash flows in the periods paid. Other non-current assets Other non-current assets include a $5.0 million non-controlling investment in a privately-held company that is accounted for under the cost method of accounting. The Company periodically evaluates the carrying value of the investment if significant adverse events or circumstances indicate a possible impairment. Revenue recognition The Company’s revenues are comprised of ADCETRIS ® Net product sales The Company sells ADCETRIS through a limited number of pharmaceutical distributors in the U.S. and Canada. Customers order ADCETRIS through these distributors and the Company typically ships product directly to the customer. The Company records product sales when title and risk of loss pass, which generally occurs upon delivery of the product to the customer. Product sales are recorded 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. The Company reflects 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 payer mix in target markets and experience to date. These estimates involve a substantial degree of judgment. Government-mandated rebates and chargebacks Distribution fees, product returns and other deductions Collaboration and license agreement revenues The Company has developed a proprietary technology for linking cytotoxic agents to monoclonal antibodies called antibody-drug conjugates, or ADCs. This proprietary technology is the basis of ADC collaborations that the Company has entered into in the ordinary course of its business with a number of biotechnology and pharmaceutical companies. Under these ADC collaboration agreements, the Company grants its collaborators research and commercial licenses to the Company’s technology and provides technology transfer services, technical advice, supplies and services for a period of time. If there are continuing performance obligations, the Company uses a time-based proportional performance model to recognize revenue over the Company’s performance period for the related agreement. Collaboration and license agreements are evaluated to determine whether the multiple elements and associated deliverables can be considered separate units of accounting. To date, the pre-commercial deliverables under the Company’s collaboration and license agreements have not qualified as separate units of accounting. The assessment of multiple element arrangements requires judgment in order to determine the appropriate point in time, or period of time, that revenue should be recognized. The Company believes that the development period in each agreement is a reasonable estimate of the performance obligation period of such agreement. Accordingly, all amounts received or due, including any upfront payments, maintenance fees, development and regulatory milestone payments and reimbursement payments, are recognized as revenue over the performance obligation periods of each agreement. These performance obligation periods currently range from one to fourteen years and all of the remaining performance obligation periods will be completed in five years or less. When no performance obligations are required of the Company, or following the completion of the performance obligation period, such amounts are recognized as revenue when collectibility is reasonably assured. Generally, all amounts received or due other than sales-based milestones and royalties are classified as collaboration and license agreement revenues as they are earned. Sales-based milestones and royalties are recognized as royalty revenue as they are reported to the Company. The Company’s collaboration and license agreements include contractual milestones. Generally, the milestone events contained in the Company’s collaboration and license agreements coincide with the progression of the collaborators’ product candidates from development, to regulatory approval and then to commercialization and fall into the following categories. Development milestones in the Company’s collaborations may include the following types of events: • Designation of a product candidate or initiation of pre-clinical studies. The Company’s collaborators must undertake significant pre-clinical research and studies to make a determination of the suitability of a product candidate and the time from those studies or designation to initiation of a clinical trial may take several years. • Initiation of a phase 1 clinical trial. Generally, phase 1 clinical trials may take one to two years to complete. • Initiation of a phase 2 clinical trial. Generally, phase 2 clinical trials may take one to three years to complete. • Initiation of a phase 3 clinical trial. Generally, phase 3 clinical trials may take two to six years to complete. Regulatory milestones in the Company’s collaborations may include the following types of events: • Filing of regulatory applications for marketing approval such as a Biologics License Application in the United States or a Marketing Authorization Application in Europe. Generally, it may take up to twelve months to prepare and submit regulatory filings. • Receiving marketing approval in a major market, such as in the United States, Europe, Japan or other significant countries. Generally it may take up to three years after a marketing application is submitted to obtain approval for marketing and pricing from the applicable regulatory agency. Commercialization milestones in the Company’s collaborations may include the following types of events: • First commercial sale in a particular market, such as in the United States, Europe, Japan or other significant countries. • Product sales in excess of a pre-specified threshold. The amount of time to achieve this type of milestone depends on several factors, including, but not limited to, the dollar amount of the threshold, the pricing of the product, market penetration of the product and the rate at which customers begin using the product. The Company’s ADC collaborators are solely responsible for the development of their product candidates and the achievement of milestones in any of the categories identified above is based solely on the collaborators’ efforts. In the case of the Company’s ADCETRIS collaboration with Takeda Pharmaceutical Company Limited (“Takeda”), the Company may be involved in certain development activities; however, the achievement of milestone events under the agreement is primarily based on activities undertaken by Takeda. The process of successfully developing a product candidate, obtaining regulatory approval and ultimately commercializing a product candidate is highly uncertain and the attainment of any milestones is therefore uncertain and difficult to predict. In addition, since the Company does not take a substantive role or control the research, development or commercialization of any products generated by its ADC collaborators, the Company is not able to reasonably estimate when, if at all, any milestone payments or royalties may be payable to the Company by its ADC collaborators. As such, the milestone payments associated with its ADC collaborations involve a substantial degree of uncertainty and risk that they may never be received. Similarly, even in those collaborations where the Company may have an active role in the development of the product candidate, such as the Company’s ADCETRIS collaboration with Takeda, the attainment of a milestone is based on the collaborator’s activities and is generally outside the direction and control of the Company. The Company generally invoices its 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 when the applicable revenue recognition criteria have been met. Deferred revenue expected to be recognized within the next twelve months is classified as a current liability. Royalty revenues and cost of royalty revenues Royalty revenues primarily reflect amounts earned under the ADCETRIS collaboration with Takeda. These royalties include sales royalties, which are based on a percentage of Takeda’s net sales at rates that range from the mid-teens to the mid-twenties based on sales volume, and commercial sales-based milestones. Takeda bears a portion of third-party royalty costs owed on its sales of ADCETRIS. This amount is included in royalty revenue in the Company’s consolidated financial statements. Cost of royalty revenues reflects amounts owed to the Company’s third party licensors related to Takeda’s sales of ADCETRIS. These amounts are recognized in the quarter in which Takeda reports its sales activity to the Company, which is the quarter following the related sales. Royalty revenues also include amounts earned in connection with the Company’s ADC collaborations. Consolidation and Foreign Currency The net assets of international subsidiaries whose functional currency is not the U.S. dollar are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recognized in other comprehensive income. The earnings of these subsidiaries are translated into U.S. dollars using average exchange rates. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update entitled “ASU 2014-09, 2015-14,

Net loss per share

Net loss per share	9 Months Ended
	Sep. 30, 2015
Earnings Per Share [Abstract]
Net loss per share	2. Net loss per share Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. The Company excluded all unvested restricted stock units and options to purchase common stock from the calculation of diluted net loss per share as such securities are anti-dilutive for all periods presented. The weighted-average number of unvested restricted stock units and options to purchase common stock that have been excluded from the number of shares used to calculate basic and diluted net loss per share totaled 11,625,000 and 11,790,000 for the three months ended September 30, 2015 and 2014, and 11,743,000 and 11,622,000 for the nine months ended September 30, 2015 and 2014, respectively.

Common Stock

Common Stock	9 Months Ended
	Sep. 30, 2015
Equity [Abstract]
Common Stock	3. Common Stock In September 2015, the Company completed an underwritten public offering of 13,463,415 shares of its common stock at a public offering price of $41.00 per share. The offering resulted in net proceeds to the Company of approximately $526.6 million, after deducting underwriting discounts and commissions and other offering expenses.

Short-term Investments

Short-term Investments	9 Months Ended
	Sep. 30, 2015
Investments, Debt and Equity Securities [Abstract]
Short-term Investments	4. Short-term Investments Short-term investments consisted of available-for-sale securities as follows (in thousands): Amortized Gross Gross Fair September 30, 2015 U.S. Treasury securities $ 122,365 $ 17 $ (2 ) $ 122,380 Contractual Maturities Due in one year or less $ 122,365 $ 122,380 Amortized Gross Gross Fair December 31, 2014 U.S. Treasury securities $ 256,515 $ 2 $ (31 ) $ 256,486 Contractual Maturities Due in one year or less $ 256,515 $ 256,486 The aggregate estimated fair value of the Company’s investments with unrealized losses was as follows (in thousands): Period of continuous unrealized loss 12 Months or less Greater than 12 months Fair Gross Fair Gross September 30, 2015 U.S. Treasury securities $ 34,076 $ (2 ) $ NA $ NA December 31, 2014 U.S. Treasury securities $ 205,966 $ (31 ) $ NA $ NA

Fair Value

Fair Value	9 Months Ended
	Sep. 30, 2015
Fair Value Disclosures [Abstract]
Fair Value	5. Fair Value The Company holds short-term available-for-sale securities that are measured at fair value which is determined on a recurring basis according to a fair value hierarchy that prioritizes the inputs and assumptions used, and the valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows: 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. The Company considers 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. Level 1 investments, which include investments that are valued based on quoted market prices in active markets, consisted of U.S. Treasury securities. The Company did not hold any Level 2 or 3 investments as of September 30, 2015 or December 31, 2014 and did not transfer any investments between Levels 1, 2 and 3 during the nine month period ended September 30, 2015. The following table presents the Company’s financial assets by level within the fair value hierarchy for the periods presented (in thousands): Fair value measurement using: Quoted prices Other Significant Total As of September 30, 2015 Short-term investments—U.S. Treasury securities $ 122,380 $ 0 $ 0 $ 122,380 Fair value measurement using: Quoted prices Other Significant Total As of December 31, 2014 Cash equivalents – U.S. Treasury securities $ 5,003 $ 0 $ 0 $ 5,003 Short-term investments—U.S. Treasury securities 256,486 0 0 256,486 Total $ 261,489 $ 0 $ 0 $ 261,489

Inventories

Inventories	9 Months Ended
	Sep. 30, 2015
Inventory Disclosure [Abstract]
Inventories	6. Inventories The following table presents the Company’s inventories of ADCETRIS (in thousands): September 30, December 31, Raw materials $ 40,819 $ 35,865 Work in process 626 3,920 Finished goods 3,070 3,666 Total $ 44,515 $ 43,451 The Company capitalizes 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. The Company does not capitalize manufacturing costs for any of its other product candidates.

Legal Matters

Legal Matters	9 Months Ended
	Sep. 30, 2015
Commitments and Contingencies Disclosure [Abstract]
Legal Matters	7. Legal Matters In the normal course of its business, the Company may become involved in various legal proceedings. For example, Arizona State University and related entities filed patent infringement lawsuits in the United States and in Italy against the Company, and in Italy and France against Takeda, the Company’s licensee of rights to ADCETRIS outside the U.S. and Canada, concerning certain patents owned by Arizona State University. In August 2015, the lawsuit in the United States against the Company was dismissed by the U.S. District Court of Arizona. In September 2015, the Company, Takeda and Arizona State University and their related entities entered into an agreement to fully and finally settle all remaining claims and disputes between the parties throughout the world, including proceedings asserting European patent rights owned by Arizona State University.

Collaboration and license agree

Collaboration and license agreements	9 Months Ended
	Sep. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Collaboration and license agreements	8. Collaboration and license agreements Unum Therapeutics Co-Development Collaboration In June 2015, the Company entered into an agreement with Unum Therapeutics, Inc., or Unum, to develop and commercialize novel antibody-coupled T-cell receptor, or ACTR, therapies for cancer. Under the terms of the agreement, the Company made an upfront payment of $25.0 million and an equity investment of $5.0 million in Unum. The Company and Unum will initially develop two ACTR products incorporating the Company’s antibodies, and the Company has an option to expand the collaboration to include a third ACTR product upon payment of an additional fee. Unum will conduct preclinical research and clinical development activities through phase 1 and the Company will provide funding for these activities. The Company and Unum will work together to co-develop and jointly fund programs after phase 1 unless either company opts out. The Company and Unum will co-commercialize and share profits 50/50 on any co-developed programs in the United States. The Company will retain exclusive commercial rights outside of the United States, paying Unum a royalty that is a high single digit to mid-teens percentage of ex-U.S. sales. The potential future licensing and progress-dependent milestone payments to Unum under the collaboration may total up to $615 million across all three ACTR programs, payment of which is triggered by the achievement of development, regulatory and commercial milestones.

Income taxes

Income taxes	9 Months Ended
	Sep. 30, 2015
Income Tax Disclosure [Abstract]
Income taxes	9. Income taxes In May 2015, the Company licensed certain intellectual property rights related to its non-partnered clinical programs to its wholly-owned subsidiary in Switzerland. Although the license of these intellectual property rights did not result in any gain or loss in the condensed consolidated statements of comprehensive loss, the transaction did generate a gain for U.S. federal income tax purposes. The Company will utilize available net operating loss carryforwards to offset the gain.

Summary of significant accoun15

Summary of significant accounting policies (Policies)	9 Months Ended
	Sep. 30, 2015
Accounting Policies [Abstract]
Basis of presentation	Basis of presentation The accompanying unaudited condensed consolidated financial statements reflect the accounts of Seattle Genetics, Inc. and its wholly-owned subsidiaries (collectively “Seattle Genetics” or the “Company”). All significant intercompany transactions and balances have been eliminated. Management has determined that the Company operates in one segment: the development and sale of pharmaceutical products on its own behalf or in collaboration with others. Substantially all of the Company’s assets and revenues are related to operations in the United States; however, the Company also has subsidiaries in the United Kingdom, Switzerland and Canada. The condensed consolidated balance sheet data as of December 31, 2014 were derived from audited 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 which, in the opinion of management, are necessary for a fair statement of the Company’s financial position and results of its operations, as of and for the periods presented. Unless indicated otherwise, all amounts presented in financial tables are presented in thousands, except for per share and par value amounts. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The results of the Company’s operations for the three and nine month periods ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year.
Non-cash investing activities	Non-cash investing activities The Company had $1.3 million and $1.6 million of accrued capital expenditures as of September 30, 2015 and December 31, 2014, respectively. Accrued capital expenditures have been treated as a non-cash investing activity and, accordingly, have been included in the condensed consolidated statements of cash flows in the periods paid.
Other non-current assets	Other non-current assets Other non-current assets include a $5.0 million non-controlling investment in a privately-held company that is accounted for under the cost method of accounting. The Company periodically evaluates the carrying value of the investment if significant adverse events or circumstances indicate a possible impairment.
Revenue recognition	Revenue recognition The Company’s revenues are comprised of ADCETRIS ® Net product sales The Company sells ADCETRIS through a limited number of pharmaceutical distributors in the U.S. and Canada. Customers order ADCETRIS through these distributors and the Company typically ships product directly to the customer. The Company records product sales when title and risk of loss pass, which generally occurs upon delivery of the product to the customer. Product sales are recorded 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. The Company reflects 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 payer mix in target markets and experience to date. These estimates involve a substantial degree of judgment. Government-mandated rebates and chargebacks Distribution fees, product returns and other deductions Collaboration and license agreement revenues The Company has developed a proprietary technology for linking cytotoxic agents to monoclonal antibodies called antibody-drug conjugates, or ADCs. This proprietary technology is the basis of ADC collaborations that the Company has entered into in the ordinary course of its business with a number of biotechnology and pharmaceutical companies. Under these ADC collaboration agreements, the Company grants its collaborators research and commercial licenses to the Company’s technology and provides technology transfer services, technical advice, supplies and services for a period of time. If there are continuing performance obligations, the Company uses a time-based proportional performance model to recognize revenue over the Company’s performance period for the related agreement. Collaboration and license agreements are evaluated to determine whether the multiple elements and associated deliverables can be considered separate units of accounting. To date, the pre-commercial deliverables under the Company’s collaboration and license agreements have not qualified as separate units of accounting. The assessment of multiple element arrangements requires judgment in order to determine the appropriate point in time, or period of time, that revenue should be recognized. The Company believes that the development period in each agreement is a reasonable estimate of the performance obligation period of such agreement. Accordingly, all amounts received or due, including any upfront payments, maintenance fees, development and regulatory milestone payments and reimbursement payments, are recognized as revenue over the performance obligation periods of each agreement. These performance obligation periods currently range from one to fourteen years and all of the remaining performance obligation periods will be completed in five years or less. When no performance obligations are required of the Company, or following the completion of the performance obligation period, such amounts are recognized as revenue when collectibility is reasonably assured. Generally, all amounts received or due other than sales-based milestones and royalties are classified as collaboration and license agreement revenues as they are earned. Sales-based milestones and royalties are recognized as royalty revenue as they are reported to the Company. The Company’s collaboration and license agreements include contractual milestones. Generally, the milestone events contained in the Company’s collaboration and license agreements coincide with the progression of the collaborators’ product candidates from development, to regulatory approval and then to commercialization and fall into the following categories. Development milestones in the Company’s collaborations may include the following types of events: • Designation of a product candidate or initiation of pre-clinical studies. The Company’s collaborators must undertake significant pre-clinical research and studies to make a determination of the suitability of a product candidate and the time from those studies or designation to initiation of a clinical trial may take several years. • Initiation of a phase 1 clinical trial. Generally, phase 1 clinical trials may take one to two years to complete. • Initiation of a phase 2 clinical trial. Generally, phase 2 clinical trials may take one to three years to complete. • Initiation of a phase 3 clinical trial. Generally, phase 3 clinical trials may take two to six years to complete. Regulatory milestones in the Company’s collaborations may include the following types of events: • Filing of regulatory applications for marketing approval such as a Biologics License Application in the United States or a Marketing Authorization Application in Europe. Generally, it may take up to twelve months to prepare and submit regulatory filings. • Receiving marketing approval in a major market, such as in the United States, Europe, Japan or other significant countries. Generally it may take up to three years after a marketing application is submitted to obtain approval for marketing and pricing from the applicable regulatory agency. Commercialization milestones in the Company’s collaborations may include the following types of events: • First commercial sale in a particular market, such as in the United States, Europe, Japan or other significant countries. • Product sales in excess of a pre-specified threshold. The amount of time to achieve this type of milestone depends on several factors, including, but not limited to, the dollar amount of the threshold, the pricing of the product, market penetration of the product and the rate at which customers begin using the product. The Company’s ADC collaborators are solely responsible for the development of their product candidates and the achievement of milestones in any of the categories identified above is based solely on the collaborators’ efforts. In the case of the Company’s ADCETRIS collaboration with Takeda Pharmaceutical Company Limited (“Takeda”), the Company may be involved in certain development activities; however, the achievement of milestone events under the agreement is primarily based on activities undertaken by Takeda. The process of successfully developing a product candidate, obtaining regulatory approval and ultimately commercializing a product candidate is highly uncertain and the attainment of any milestones is therefore uncertain and difficult to predict. In addition, since the Company does not take a substantive role or control the research, development or commercialization of any products generated by its ADC collaborators, the Company is not able to reasonably estimate when, if at all, any milestone payments or royalties may be payable to the Company by its ADC collaborators. As such, the milestone payments associated with its ADC collaborations involve a substantial degree of uncertainty and risk that they may never be received. Similarly, even in those collaborations where the Company may have an active role in the development of the product candidate, such as the Company’s ADCETRIS collaboration with Takeda, the attainment of a milestone is based on the collaborator’s activities and is generally outside the direction and control of the Company. The Company generally invoices its 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 when the applicable revenue recognition criteria have been met. Deferred revenue expected to be recognized within the next twelve months is classified as a current liability. Royalty revenues and cost of royalty revenues Royalty revenues primarily reflect amounts earned under the ADCETRIS collaboration with Takeda. These royalties include sales royalties, which are based on a percentage of Takeda’s net sales at rates that range from the mid-teens to the mid-twenties based on sales volume, and commercial sales-based milestones. Takeda bears a portion of third-party royalty costs owed on its sales of ADCETRIS. This amount is included in royalty revenue in the Company’s consolidated financial statements. Cost of royalty revenues reflects amounts owed to the Company’s third party licensors related to Takeda’s sales of ADCETRIS. These amounts are recognized in the quarter in which Takeda reports its sales activity to the Company, which is the quarter following the related sales. Royalty revenues also include amounts earned in connection with the Company’s ADC collaborations.
Consolidation and Foreign Currency	Consolidation and Foreign Currency The net assets of international subsidiaries whose functional currency is not the U.S. dollar are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recognized in other comprehensive income. The earnings of these subsidiaries are translated into U.S. dollars using average exchange rates.
Recent Accounting Pronouncements	Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update entitled “ASU 2014-09, 2015-14,

Short-term Investments (Tables)

Short-term Investments (Tables)	9 Months Ended
	Sep. 30, 2015
Investments, Debt and Equity Securities [Abstract]
Available-for-Sale Securities	Short-term investments consisted of available-for-sale securities as follows (in thousands): Amortized Gross Gross Fair September 30, 2015 U.S. Treasury securities $ 122,365 $ 17 $ (2 ) $ 122,380 Contractual Maturities Due in one year or less $ 122,365 $ 122,380 Amortized Gross Gross Fair December 31, 2014 U.S. Treasury securities $ 256,515 $ 2 $ (31 ) $ 256,486 Contractual Maturities Due in one year or less $ 256,515 $ 256,486
Estimated Fair Value of Investments with Unrealized Losses	The aggregate estimated fair value of the Company’s investments with unrealized losses was as follows (in thousands): Period of continuous unrealized loss 12 Months or less Greater than 12 months Fair Gross Fair Gross September 30, 2015 U.S. Treasury securities $ 34,076 $ (2 ) $ NA $ NA December 31, 2014 U.S. Treasury securities $ 205,966 $ (31 ) $ NA $ NA

Fair Value (Tables)

Fair Value (Tables)	9 Months Ended
	Sep. 30, 2015
Fair Value Disclosures [Abstract]
Schedule of Financial Assets by Level within Fair Value Hierarchy	The following table presents the Company’s financial assets by level within the fair value hierarchy for the periods presented (in thousands): Fair value measurement using: Quoted prices Other Significant Total As of September 30, 2015 Short-term investments—U.S. Treasury securities $ 122,380 $ 0 $ 0 $ 122,380 Fair value measurement using: Quoted prices Other Significant Total As of December 31, 2014 Cash equivalents – U.S. Treasury securities $ 5,003 $ 0 $ 0 $ 5,003 Short-term investments—U.S. Treasury securities 256,486 0 0 256,486 Total $ 261,489 $ 0 $ 0 $ 261,489

Inventories (Tables)

Inventories (Tables)	9 Months Ended
	Sep. 30, 2015
Inventory Disclosure [Abstract]
Schedule of Inventories	The following table presents the Company’s inventories of ADCETRIS (in thousands): September 30, December 31, Raw materials $ 40,819 $ 35,865 Work in process 626 3,920 Finished goods 3,070 3,666 Total $ 44,515 $ 43,451

Summary of Significant Accoun19

Summary of Significant Accounting Policies - Additional Information (Detail) $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2015USD ($)Segment	Dec. 31, 2014USD ($)
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Number of reporting segment operated | Segment	1
Accrued capital expenditures	$ 1.3	$ 1.6
Cost method investment, carrying value	$ 5
Number of days allowed to the customer to return product for expiration or damaged	30 days
Minimum [Member] | Collaboration and license agreement revenues [Member]
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Performance obligation periods of each agreement, years	1 year
Maximum [Member] | Collaboration and license agreement revenues [Member]
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Performance obligation periods of each agreement, years	14 years
Remaining performance obligation periods of each agreement, years	5 years

Net Loss Per Share - Additional

Net Loss Per Share - Additional Information (Detail) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Earnings Per Share [Abstract]
Weighted-average shares that have been excluded from the number of shares used to calculate basic and diluted net loss per share	11,625,000	11,790,000	11,743,000	11,622,000

Common Stock - Additional infor

Common Stock - Additional information (Detail) - Common stock [Member] $ / shares in Units, $ in Millions	1 Months Ended
	Sep. 30, 2015USD ($)$ / sharesshares
Class of Stock [Line Items]
Common stock, shares issued | shares	13,463,415
Common stock, issue price | $ / shares	$ 41
Net proceeds from issuance of common stock	$ 526.6

Short-Term Investments - Availa

Short-Term Investments - Available-for-Sale Securities (Detail) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, Fair value	$ 122,380	$ 256,486
Contractual Maturities, Due in one year or less, Amortized cost	122,365	256,515
Contractual Maturities, Due in one year or less, Fair value	122,380	256,486
U.S. Treasury securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, Amortized cost	122,365	256,515
Available-for-sale securities, Gross unrealized gains	17	2
Available-for-sale securities, Gross unrealized losses	(2)	(31)
Available-for-sale securities, Fair value	$ 122,380	$ 256,486

Short-Term Investments - Estima

Short-Term Investments - Estimated Fair Value of Investments with Unrealized Losses (Detail) - U.S. Treasury securities [Member] - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, Period of continuous unrealized loss, 12 Months or less, Fair value	$ 34,076	$ 205,966
Available-for-sale securities, Period of continuous unrealized loss, 12 Months or less, Gross unrealized losses	(2)	(31)
Available-for-sale securities, Period of continuous unrealized loss, Greater than 12 months, Fair value	0	0
Available-for-sale securities, Period of continuous unrealized loss, Greater than 12 months, Gross unrealized losses	$ 0	$ 0

Fair Value - Additional Informa

Fair Value - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2015USD ($)
Fair Value Disclosures [Abstract]
Transfer of investments between Levels 1, 2 and 3	$ 0

Fair Value - Schedule of Financ

Fair Value - Schedule of Financial Assets by Level within Fair Value Hierarchy (Detail) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments		$ 261,489
U.S. Treasury securities [Member] | Cash equivalents [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments		5,003
U.S. Treasury securities [Member] | Short-term investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	$ 122,380	256,486
Quoted prices in active markets for identical assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments		261,489
Quoted prices in active markets for identical assets (Level 1) [Member] | U.S. Treasury securities [Member] | Cash equivalents [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments		5,003
Quoted prices in active markets for identical assets (Level 1) [Member] | U.S. Treasury securities [Member] | Short-term investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	122,380	256,486
Other observable inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments		0
Other observable inputs (Level 2) [Member] | U.S. Treasury securities [Member] | Cash equivalents [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments		0
Other observable inputs (Level 2) [Member] | U.S. Treasury securities [Member] | Short-term investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	0	0
Significant unobservable inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments		0
Significant unobservable inputs (Level 3) [Member] | U.S. Treasury securities [Member] | Cash equivalents [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments		0
Significant unobservable inputs (Level 3) [Member] | U.S. Treasury securities [Member] | Short-term investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments	$ 0	$ 0

Inventories - Schedule of Inven

Inventories - Schedule of Inventories (Detail) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Inventory Disclosure [Abstract]
Raw materials	$ 40,819	$ 35,865
Work in process	626	3,920
Finished goods	3,070	3,666
Total	$ 44,515	$ 43,451

Collaboration and License Agr27

Collaboration and License Agreements - Additional Information (Detail) - USD ($)	1 Months Ended	9 Months Ended
	Jun. 30, 2015	Sep. 30, 2015
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Cost method investment, carrying value		$ 5,000,000
Collaboration and co-development agreement with Unum [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Upfront payment	$ 25,000,000
Cost method investment, carrying value	$ 5,000,000
Future profits share on co-developed programs		50/50
Collaboration and co-development agreement with Unum [Member] | Maximum [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Potential future licensing and progress dependent milestone payments		$ 615,000,000