Incyte Corporation (INCY) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us for our 41st Annual Global Health Care Conference this morning. And before we start, I just want to make some disclosures. So we are required to make certain disclosures in public appearances about Goldman Sachs' relationships with companies that we discuss. The disclosures relate to investment banking relationships, compensations received or 1% or more ownership. We are prepared to read aloud disclosures for any issuer upon request. However, these disclosures are available in our most recent reports available to you as clients on our firm Portals. Disclosures and updates to those disclosures are also available by ticker on the firm's public website. In addition, disclosures applicable to research with respect to companies, if any, mentioned herein are available through your investment representative. Further information on the subject companies may be obtained from Goldman Sachs Securities Private Limited. Goldman Sachs may beneficially own 1% or more of the securities as such is defined in clause 2(h) of the securities contract of the subject company. Also, the views stated by non-Goldman Sachs personnel do not necessarily reflect those of Goldman Sachs. As we've done in past years, we also have a very quick survey being hosted on the conference page and in your e-mail in lieu of a life polling. We would love to get your feedback and really appreciate your participation. With that, it is my pleasure to introduce Incyte. And with us, we have Hervé Hoppenot, the Chairman, President and CEO; as well as Christiana Stamoulis, the CFO. And with that, Hervé, I'll turn it over to you.

And the first question really is, at a high level, where do you see Incyte in 5 years or over the next 10-year period? Can you touch on your overall vision for the company? And what pieces are being put in place now to advance these goals?

Yes. Good morning, Salveen. I will -- so together with Christiana, we'll speak about there's a buildup of Incyte, and how the pieces are coming together. Before that, I want to maybe go back to what makes Incyte, Incyte, which is science, discovery and the belief that we can create value for society on -- based on doing good science and good clinical development and bringing these new products to patients around the world. And I think what is happening in front of our eyes is just showing that this model is very valid, very modern, and it's also reconciling economic requirement for innovation on one hand and for access on the other. And today, we have 4 molecules that were discovered at Incyte, have been approved by FDA: ruxolitinib, baricitinib but now pemigatinib and capmatinib. So it shows that this model, in fact, can be working very well for the benefit of everybody. What's also interesting is speaking of the way Incyte we look in 5 years is that this product that we have discovered here are changing the practice of medicine for myelofibrosis, polycythemia vera, GVHD, cholangiocarcinoma, a certain form of lung cancer, and are contributing today to the fast growth of Incyte. So the last quarter was north of 20%. And this orientation on innovation, research and discovery is also what's allowing us to leverage the P&L with indications that are innovative and where our products are very differentiated and very unique. The other thing I would say on the big picture is about field where we have chosen to allocate our innovation resources, which is immunology, inflammation and oncology with small molecule antibodies and bispecific. And it's clear that we are in the right area where there is a large medical need and where technologies are moving very quickly. So the last 6 months, just since the beginning of the year, have been very active at Incyte. We made a lot of progress. Obviously, the growth of Jakafi continues. We had the approval of pemigatinib, off capmatinib. We have this partnership with MorphoSys for tafasitamab. We had a very important publication in the New England Journal of Medicine of the REACH2 randomized study in acute GVHD. We also disclosed atopic dermatitis data with RUX cream after revolutionizing atopic dermatitis, which was very important because it was the first time that data became fully public. We have accelerated the so-called LIMBER program about our leadership in myelofibrosis and polycythemia vera, and we got very good data with PI3-kinase delta plus RUX and tafasitamab that will be presented at EHA at the end of the week. So it was a very, very busy past few months. Now if you think of what Incyte will look like in 5 years, obviously, our franchise in MF and PV will continue to grow. And assuming some level of regulatory success, we will have, by then, PI3-kinase delta, the BET inhibitor, ALK2, also available as combination medicines with ruxolitinib and potentially in fixed-dose combination. So that's an important part of the way the corporation will be evolving, how the revenue line is going to be evolving. Is that -- not only is it going to grow and expand, but it's also going to diversify in the field of myelofibrosis and polycythemia vera. I think the second hematology franchise, again, assuming success -- regulatory success, will be in B-cell malignancies and lymphoma with tafasitamab and our PI3-kinase delta in multiple disease. Obviously, pemigatinib will continue to grow, and we have a number of programs ongoing to expand pemigatinib. One of them that I believe is very important is our agnostic tumor indication where we have ongoing clinical trials. So assuming success, it will become a bigger part of our portfolio. And by then, in 5 years, our immuno-oncology franchise will be in full expansion. We have an IV and an oral program, PD-1, PD-L1 inhibitors, and we have a number of new products with very specific profile like AXL/MER. We have a bispecific 4-1BB, PD-L1, et cetera. So there will be this new immuno-oncology franchise that will be growing. And obviously, the dermatology franchise in the U.S. will be in a fast-growth mode with RUX cream in atopic dermatitis and vitiligo. So from the portfolio standpoint, when you look at the 5 years, I think you can look at the existing late-stage portfolio and how it's going to evolve, and how it's going to contribute to the growth and the diversification of the portfolio. And then we should have increasing royalty stream from RUX, from RUX cream where we partner it for baricitinib, capmatinib and the rest of the portfolio for territories outside of U.S., Europe and Japan. So it will be a phase of growth -- of high growth, of diversification with a good and leveraged P&L. Now in 10 years, that's a little more difficult to describe it in detail. But by then, we will have leadership position in U.S., Europe and Japan in the fields that I just described. I think the myelofibrosis and PV franchise will be transformed by the new mechanisms that we are studying by the fixed-dose combinations that we are trying to put in place. And obviously, the early pipeline of today will be, hopefully, in a growth mode to give an additional layer of new products to our portfolio. And as far as we know today, it will be in the field of autoimmunity, inflammation and cancer. And then, obviously, we have always the opportunity to add new growth driver from the business development program that we are pursuing. So that's the picture we have in front of us. A lot of progress in the past few months, and a lot of interesting new data point coming in the next 6 and 12 months.

Great. And to follow up on your last comments, so you have spoken in the past about the need to be strategic with respect to business development. Can you talk about the considerations and overall approach you're taking here? And how do you evaluate which assets and technologies to add to your portfolio, just given the breadth of what you said right now? And how are you prioritizing disease areas to focus on?

Christiana, do you want to speak about that?

Happy to address this. So in terms of BD, the goal in our -- the goal that we have for BD in our criteria are very much in line with the MorphoSys deal that we did at the beginning of the year and in line with what we have discussed in the past. So we are looking at the [ key asset ] way to complement our internal activities and add to our goal of revenue diversification and continue to drive long-term growth, both top and bottom line growth. And so we are interested in assets that -- especially who will contribute in the mid-'20s time frame and will be in areas where we have expertise and capabilities that we can leverage. And obviously, leveraging those capabilities will also allow us to realize certain synergies and allow us to further provide operating leverage. So when you think about the -- those areas, they are human oncology. Obviously, MPNs, although, in the case of MPNs, we're also interested in earlier-stage assets and technologies that could provide new approaches to treating the diseases and allow us to continue to solidify and maintain our leadership in this space and potentially there. And I'm saying potentially there because we have a very high bar in terms of science. We want the assets that we bring in through BD to meet the same bar that we have for our internal assets, high science, really contributing to transforming the way diseases are treated and addressing unmet medical needs. And when it comes to derm, it's harder to find assets like that. But if we were to -- could find assets that meet this criteria and would allow us to kick-start, for example, our effort in derm in the U.S., that would be of interest as well. So we are in stock position even after paying for the upfront and equity investment in MorphoSys. We ended Q1 with $1.3 billion of cash on the balance sheet, and that gives us the capacity to continue to look and consider bolt-on type of assets, very much in line with what we do with MorphoSys.

And then when we look at the stock here, it's recently broken out of its trading range. What do you think investors or what do you think is appreciated now about the story that maybe wasn't before? And what do you think is not yet appreciated with the story on the board?

Maybe I can start, and Christiana, if you want to comment. I think the story is complex. There is obviously the growth of our existing franchisees, which is very good, and I think most have been seeing that. The value and the way the pipeline would be having a meaningful impact on the diversification of the corporation in the short term has been maybe one of the questions that now is starting to be answered because since the beginning of the year, as I said, there were a number of positive news that came. I think that tafasitamab agreement is showing our willingness to invest into new franchisees beyond our MF and PV existing franchise. The approval of both pemigatinib and capmatinib are starting 2 new lines of revenue with a long life. I mean they are projects that are going -- have just starting for -- and have a long patent life. So I think it must have to do with the pipeline. I also think that the atopic dermatitis data with ruxolitinib cream was probably better than what most people were expecting. So that could have been a driver for, including now some level of dermatology revenue as a new franchise for Incyte in the future, which I think is the right thing because either there is a fairly large potential in this field, not only in atopic derm but also after that in vitiligo. So that's probably some recognition that the late-stage pipeline is delivering, but the data was overall fairly positive, and that's creating -- when you look at the way the portfolio is evolving, that's creating another reason to believe in the high growth and diversification agenda that we have. I don't know, Christiana, is there any...

I agree with your comments. I think this -- since the beginning of the year, we had a lot of positive developments that are starting to put more of the spotlight on our pipeline and investors to recognize that there are a number of different programs that could, in the near term, contribute to the top line. I think there is still a lot of room to go in terms of understanding the potential, both in the case of derm where, for example, vitiligo is a new indication. Nobody else has ever developed anything for this disease. So it's still hard to put -- for investors to put their arms around the size of the opportunity. And then there are also other activities like with LIMBER where I don't think we are really at this point getting any value attributed to those activities. But hopefully, as we start providing more information and data on the different programs, we'll start seeing that getting reflected.

Moving on to the products. So with Jakafi, just to start. Can you talk about the impact that you're seeing to the business in COVID-19? And what gives you, I guess, continued confidence here that your guide for 2020 is achievable?

So obviously -- so Jakafi is an oral product. It's a semi-chronic type of treatment. So maybe the impact we saw was less than what you would expect for an injectable product that is given in a hospital. I mean there is a sort of -- in the -- and in cancer. As you know, cancer has been one of the most protected areas where patients continue to visit their physician, et cetera. However, in some parts of the country, and New York is a very good example, we saw a decrease in the new patient flow, which is absolutely not surprising. We are expecting to see a rebound, in fact, because patients who need to visit the hematologist will certainly do it as the logistics are now being reorganized. And as you saw in Q1, the growth -- before the confinement, the growth of the franchise was, in fact, very good with each of the MF, PV and GVHD indications growing in term of number of patients treated, number of new patients by then going to see their physician. And so we are very confident that the -- I would not say there has been 0 impact, but the impact was relatively modest, and that we will be seeing -- in Q3, Q4, we'll be seeing the normalization, assuming our society is coming back to some level of normalcy. We'll be seeing the growth rebound from what has been a small but somewhat visible in some part of the country. And the Northeast is probably the area that was the most affected. So yes, we are very confident with the guidance we gave, and the growth in Q1 was excellent. And I think we will be able to achieve what we have been giving as a guidance for the full year.

When you look at the life cycle management program, the Phase I LIMBER program, as you mentioned, can you just comment on these different approaches, given the extended release formulation and then the various combination therapies as to how you think that this whole franchise will emerge to extend the Jakafi IP?

So I think, obviously, it's one of the top programs that we are conducting. We have now -- there are 4 important part of the LIMBER program. One of them is once-a-day different PK -- new PK form of Jakafi, and 3 products that are potentially going to improve the clinical profile of the combination versus Jakafi alone. One of them is PI3-kinase delta, and there is data coming at EHA this weekend. The second one is BET inhibitor, and we can speak about that. It's a mechanism that seems to have some benefit in patients with myelofibrosis. And the last one is ALK2, which is a very different approach because it's trying to help manage anemia. And by managing anemia, maintains the dose intensity of ruxolitinib and, therefore, potentially improve also not only safety but also efficacy. So these 4 programs are in full swing. And the way I see the next 6 years is that there will be a fragmentation of what is today's Jakafi franchise. Some patients will require better efficacy, and they will have either a BET inhibitor or PI3-kinase delta combinations available. And if we -- we are planning, trying to get it in the form of a fixed-dose combination. If the anemia is a dose-limiting toxicity when you give Jakafi, then the ALK2 combination will be available. All of these 3 combination partner are once a day. So having a once-a-day formulation of Jakafi available is obviously making it possible, and it has different IP expiration versus the current form of Jakafi. And therefore, the way we see it over time is that instead of one large Jakafi franchise for MF and PV, I think there could be sub -- the franchise will be more fragmented into subgroup of patients who have a very specific need and for whom we will have a product, a fixed-dose combination or the once-a-day product by itself that will have an improved clinical profile. And that, I think, is really the agenda we are pursuing is to improve clinically over Jakafi alone that we have today. And I think there is -- it's very possible that we'll be able to do that on both efficacy and the safety aspect of the product.

Great. And then, Hervé, we -- you're also running 2 trials with Jakafi looking at the potential to treat cytokine storm caused by COVID-19. What's the rationale here for use? And what evidence have you seen, if any, that JAK1/2s are effective?

So to be clear, I mean that was -- when the COVID situation started to emerge, obviously, we are not in the antiviral field. So we didn't sort of mobilize everybody to try to discover a new antiviral product. But what we realized very quickly is that, in fact, patients were suffering from what is now called the cytokine storm. And we have ongoing programs in CRS from CAT-19. So CAT-19, when it's -- or CATs, in general, when it's used, have one of the side effect is cytokine release syndrome that is seen in a number of patients and can be very problematic for patients with -- who are treated with the CAT technology. And we have programs with Penn here as a neighbor and with some other centers on how to manage and prevent CRS in CAT-19. And what we saw with the COVID clinical profile of patients and the cytokine release, the cytokine storm that we are witnessing, which was the cause of many of the -- for many patients, it was because of the poor evolution of their physical status, specifically in the lung, is that it would make a lot of sense to try a JAK inhibitor in that setting. Obviously, ruxolitinib being available commercially was the first priority because it was helping in term of manufacturing, in term of already having an NDA for the product. Many investigators are very interested in the hypothesis and testing it. We had some data coming from experiments that we have done in China and some anecdotes from Italy. There is a Chinese study that is randomized that has been published. It's a very small study. It's 22 patient in one arm and 20 in the other, but it was showing that the whole hypothesis was valid and was worth doing a larger study, and it was also showing that the safety of ruxolitinib at 5 milligram twice a day was totally acceptable and that there was no interaction with the viral load of the patient, which was a big subject at very early on. So that's why we are doing it. So we have 2 studies ongoing. One is in patients who are not yet under mechanical ventilation. So that study is ongoing and accruing in the U.S. and Europe. We are doing it with Novartis. And by the way, the partnership with Novartis on this was excellent, and the decision process was faster than I have ever witnessed in my entire career in this business. It was literally 2 companies deciding to go ahead and invest because the medical need is so large. And we are also doing a second study as Incyte in the U.S. in patients who are ventilated under mechanical ventilation. So that you know, there is also a program ongoing with baricitinib, and that program includes the study by the NIH and other studies that will be conducted by Lilly. So the whole hypothesis that the JAK inhibitor could be beneficial for patients to prevent the cytokine storm, I think, is something that now is becoming more and more credible. And between baricitinib and ruxolitinib, our hope, our expectation is that we can contribute, in combination with antivirals, to make this disease when diagnosed something that will be far easier to manage and will be far less deadly, which I believe would be an important change so that the whole impact of increased rate of infection will not be as much if we know that there is a good treatment available.

And moving on to the launches here. So you recently launched Pemazyre in second-line FGFR-positive cholangiocarcinoma. While it's still early, could you just give us a sense of how this launch has been progressing?

Yes. So we are one of the company launching a drug virtually. So that was certainly an experience in term of how to connect with physicians who are treating these patients. And I must say, I'm convinced it's not just us, but the industry is learning something through this situation where under pressure, we have to do it this way. And what we realize is that some of the technologies that maybe we looked at in the past and were not easy to transform into a mainstream way of speaking with customers are getting a lot of traction now. And people realize a little bit like all of us, Zoom-ing from home over the past few weeks, that, in fact, for -- not for everything, but for some of the activities we do, it can be a very efficient way to communicate and to exchange scientifically with customers. We have organized the speaker programs. We have organized interaction between experts and practicing oncologists on the testing for FGFR, on the treatment, on the dose adjustment and how to use the drug, and I think it has been fairly successful. So it will be difficult to compare what it would have been without it. What we are seeing is that the rate of testing is obviously increasing. So that's key because it's the first targeted therapy for patients with cholangiocarcinoma. I think the awareness of this mutation and the availability of a product is also growing rapidly, and we have seen a good number of prescriptions. Now to put it in perspective, as you know, FGFR mutation in cholangiocarcinoma in the U.S. is, as far as we know, as it has been calibrated, is less than 1,000 patients per year -- new patients per year. So I mean, obviously, it's very important. It's the only drug available for these patients in that setting, in the second-line setting. And -- but at the same time, we know also it has a limited scope for now. And that's why I was speaking about the new indication potentially coming up for pemigatinib. So I would say, it was a little awkward as a way to launch a new product. It was -- it is working and in the process I think we are discovering interesting new ways to interact with customers, to educate, to organize scientific programs, and that will stay even after COVID.

And looking at the second product that may be launched this year, so with tafasitamab with MorphoSys, which is an anti-CD19 antibody for lymphoma, could you just comment on when you were looking to do this partnership, what do you see in the clinical package and your market due diligence that convinced you this would have meaningful commercial potential? And then secondly, as you prepare for a launch post the August 30 PDUFA, where do you stand in terms of readiness with your sales force?

So what we see -- so the DLBCL field is a field where every year in the U.S., there are around 10,000 new patients who are not cured by R-CHOP, by the first-line treatment. So the medical need is there. The technologies available to help these patients are relatively limited. We know the CAR-T technology, but we know also the limitation of CAR-T. It's for a subgroup of patients. It's extremely -- it requires a lot of involvement logistically to be able to be used. It's done mostly in hospital and academic centers. And the other options that we are seeing in the field, like Polivy, have a clinical profile that we think we can at least match or exceed with tafasitamab. So when we looked at the data, we were thinking about these patients in the second-line DLBCL setting where we believe there is a very clear unmet need. And it's not a small number of -- it's not a small number. It's -- by itself, it has the potential to create a meaningful franchise. Again, at EHA at the end of the week, there will be a presentation of the new updated data on tafasitamab in that setting. And what it shows is a complete response rate that is around 40%, which I think is very important. And now it shows the duration of response and the median survivals that are very, very long and certainly, an improvement of our existing product in that setting. So we are still in the process of discussing with FDA to get the approval for the product. So we will -- we are expecting that approval to be during the summer. The PDUFA date is at the end of August, and we are very actively preparing for the launch. As I said, having been through the pemigatinib launch in the past -- still today, in fact, starting a few weeks ago, it's certainly helping us organize for the launch of tafasitamab. I must also say that a lot of our current customers on Jakafi are also in the private practice, the one who are treating DLBCL. So we have a more established base of practitioners that we know very well who are going to be involved in the launch in the U.S. The field force has been -- is being hired. It's not completely finalized, but we are way, way ahead on that. And I think it's a product that has the potential to become very meaningful and very important for patients but also very meaningful for what we discussed, which is this agenda of diversification and high growth. That's for the U.S. And then for the rest of the world, we announced submission in Europe. So we would be in '21 when we are seeing the potential approval for Europe.

And as we look to your inflammation and autoimmunity platform here, you recently announced positive data from topical ruxolitinib and mild to moderate atopic dermatitis. Can you just walk us through what you need to be completed ahead of the NDA submission? And then what -- in your mind now, what is the right population for this asset and what you need to get done on the sales force side to build your position in this market?

Yes. So I think I said that a little bit earlier. I think the atopic derm data that was published did exceed expectations in both efficacy and safety. It is the first in class in that area of JAK inhibitor with a topical formulation. And it's really important because the benefit/risk ratio of using a JAK topically compared to all other existing products in the field is very different with a very high level of efficacy, and you saw it on the primary endpoint of IGA, which is what the FDA is using for their evaluation. But you also saw it in each endpoint, which, as we know, is a source of a lot of complication of atopic dermatitis because of scratching and their infection and the poor quality of life, quality of sleep, et cetera. So there is a real profile that is unique in the field. We have to continue to get the longer-term safety information for FDA. So that's what's -- that's the limiting factor to the timing of the submission. We are on track for a submission at the end of the year. And obviously, that could lead to a launch for atopic dermatitis, I would say, at the end of '21. I mean somewhere in that range. I think the product profile we have is very unique, as I said, because of efficacy and because of the safety profile that has been demonstrated in the 2 large Phase III studies where what we see, in fact, compared to placebo, it was, in many cases, better, in part, because the symptoms of atopic dermatitis, as I said, including each, can be also sometimes for the placebo arm classified on the toxicity column. So it's a -- obviously, the systemic exposure we are seeing is a fraction of a fraction of what we see with an oral product. And that gives us a positioning where, obviously, there are patients who will require a biologic like Dupixent. And these are patients with a large extent of their disease that we will not be competing for because, obviously, using a topical product for this patient would not be rational or feasible. And then on the other hand, there are a number of patients who have been treated in the past with steroids, and they had some level of response, and it's coming back. And that's exactly where we believe there is a large medical need, is to have more efficacious without some of the limitation of steroids, a product that doesn't have a systemic exposure, so that you can safely use it. And that is a very large part of the current flow of patients being treated for atopic dermatitis. We estimate there are close to 10 million patients seeing their physicians for atopic dermatitis every year. There is probably a good million of them that would be on this, what I call, the Dupixent side, where a biologic would be the right approach for them. There are new patients who have never used -- never been exposed to a steroid who certainly would probably start their treatment with a steroid. And the rest is millions of patients who would be eligible for RUX cream. So I think it's a really interesting profile. It's unique in the field, and we are building an organization to launch it in the U.S. As we said in the past, for Asia and rest of the world, we'll find a partner. For Europe, we are looking at different format of having a partner and participating to the launch or going alone. And in the U.S., we have decided to -- for now, to go alone and build an organization. We have an excellent group in the medical clinical development team already. And literally, as we speak, we are building the marketing, market access, medical affairs teams for the U.S. So that will be fully prepared for next year. We estimate in term of field force that if you want to be able to reach all the dermatologists who are treating atopic dermatitis, plus some of the other high prescribers in general medicine, it's a group of around 150 people that will be able to do that. So that's an investment in term of fixed investments that we think is worth the effort because the potential for this indication, even before we speak about vitiligo, we believe, is -- since we saw the result, is probably larger than maybe what we had in mind at the beginning.

Okay. And if I could squeeze one last question here. You have a number of early- to mid-stage pipeline programs advancing. Maybe we can just touch on your oral PD-L1 agent. What can you tell us about it ahead of the proof-of-concept data that's expected later this year?

So I can say that development is progressing very well. Obviously, when you are -- we are in dose escalation, we are looking at the biomarkers that are potentially impacted by this kind of treatment, and I think it could become a very important product for many reasons. One of them, and again, during COVID, it was an interesting comment I received, is that with an oral product you can reverse the effect of the treatment. When you give an antibody -- and we have also an antibody in our portfolio. When you give an antibody, the effect of using an antibody can last more than a month or 2, in fact. When we are using an oral drug with, obviously, a short health life, if you observe a problem like an immune-related side effect, you can stop treatment, and the effect is reversed. So we are looking at that. I think it is one of the interesting aspect of having such a product. Obviously, we are looking at the anti-tumor effect that you can expect from that product. That will take time because, as you know now KEYTRUDA and other antibodies are standard of care in the setting, so we have to start from the refractory setting to evaluate that. And I think what will be very important is to see the biologic effect of the product and the safety profile. Like any other area of medicine, you want to be able to have both to create a competitive franchise. So by the end of the year, we'll certainly have some data available on the mechanism of action of the product in patients. And we are expecting to move into larger -- that could be potential regulatory or, if not large, proof-of-concept studies next year in 2021.

Great. Well, perfect. With that, I want to thank you, Hervé and Christiana, for joining us. We really appreciate it.

Thank you.