Incyte Corporation (INCY) Earnings Call Transcript & Summary

Hi. Hello, everyone. Good afternoon. Welcome to our afternoon session of the Virtual BMO Healthcare Conference. I'm George Farmer, Senior Biotechnology Analyst at BMO. It's my pleasure to have the management team of Incyte with us this afternoon, and we're going to talk about company progress. We have with us the CEO, Hervé Hoppenot; and the CFO, Christiana Stamoulis. We're going to have a fireside chat with both of them. Thank you very much for being here.

Well, thank you for inviting us.

Yes, wonderful. So perhaps we can just start on a high level and talk about flagship product Jakafi. You have provided us with some very bullish sales guidance, 2020 sales guidance of $1.88 billion to $1.95 billion this year that you maintained on your quarterly call. Can you tell us about your confidence in hitting those numbers this year? Has the pandemic affected your thoughts in any way? And perhaps you can give us some of your thoughts.

Yes. No. Obviously, I mean the year started on a very, very good trend. So when you look at the 6 months we just got through, it was -- starting the first 2.5 months at rates that would have justified shooting for higher numbers than what we have there. What has -- and when Q1 came and we had the number, we looked at the trend and the new patient flow and we decided to keep the guidance because even with a little bit of a flow of new patients that will be going -- slowing down during Q2, we had enough room to recover. So we are confident with the guidance the way it is. It's a range. So there is a possibility to be in different parts of the range, depending on the rebound in Q3 and Q4 in term of new patient flow. I think it's important to realize that Jakafi is an oral product and it's a product that is where most of the use at the point in time is coming from patients who have been on the drug for a long time, and the flow of new patients is a relatively small portion of the overall quarterly sales, if you will. But it's important. And what we saw is that in New York, specifically at the beginning, you could see that the number of new patients visiting their oncologists or hematologists was lower than what it would have been without the COVID epidemic. So I would say there was an effect of COVID on the new patient flow starting in March, in fact. And we start seeing it around the country. Now as you see the wave of COVID infection is sort of moving geographically, we see that following the confinement instruction, we had less new patients coming into the hematologists. And we anticipate that these patients will visit physicians starting now and probably in Q2, Q3 and Q4. So we are confident with the guidance. We see growth in MF, in PV and in GVHD. I think that was one of the aspect of the performance of Q1 was a very good performance in GVHD, maybe more than what we were expecting ourselves. And again, the guidance is broad enough to cover different scenario, and we think we'll be there by the end of the year.

Okay. So is there any particular segment between those 3 approved indications do you think that would be driving growth more so than others? I mean would the trend GVHD specifically...

So the largest one -- the way it works, the largest one is myelofibrosis, and it's growing. Patient growth in Q1 was around 5%. So it's still growing in volume very well because patients are treated for a longer period of time because they are treated earlier in their disease. And then there is a flow of new patient adding to the existing pool of patient that are already on treatment. Then there is PV was growing at 16% in Q1, patient growth. And PV is still a little bit smaller than MF, but it's growing faster. So at some point, maybe in 2 years or before, the PV would become the largest part of the franchise. It's important because the duration of treatment in PV is very much longer than any of the other indication. And then we had the launch in GVHD. And in Q1, we had a very good publication in New England Journal of Medicine. It was impactful because it was clearly showing that the Phase III data is, in fact, for the first time ever, showing a benefit in that indication. And the launch in GVHD, frankly, has been growing faster than we were expecting. What we don't know yet is what will the duration of treatment be in GVHD. Our assumption from the beginning was that it would be shorter than MF and PV, and we are watching that as we speak to see what will be the sort of the curve that we are observing in GVHD. But the number of new patients treated for GVHD was more than we were expecting. If you remember, in the past, I spoke about 3,000 patients in steroid-refractory, half of them in acute, so 1,500. And in fact, what we saw is that, that number is probably an underestimation of the potential for that indication.

Yes. Okay. So let's stay on GVHD and move to chronic, or the chronic form of the disease. We're supposed to have a Phase III readout expected later this year. Can you kind of help us just for an average person, how is chronic different from acute? Why should Jakafi work in chronic?

So yes, there has been a definition of chronic GVHD that evolve from a timing standpoint of saying acute is immediate and chronic is when it's later. That was the way it was defined way back. And now what has been realized is that the disease itself is different, not just the timing of its appearance, and you have B-cells involved in chronic that you don't see in acute, but -- sorry, and there is a number of characteristics like the fibrotic aspect of the disease and the way it's presenting in different organs. So we had a Phase III study in acute, the one that was just published in the New England Journal. We have a Phase III we are doing together with Novartis, chronic. The study is literally getting finalized as we speak, and we are planning to disclose the result or see the results ourselves in Q3 or Q4. I mean we said the second half of the year, but it's something that should be available. And obviously, if we have a positive Phase III in that setting, it will be, again, the first of its kind, the largest and it is very important to establish a new standard of care in that...

We got a little background noise there. So what is the Phase III -- what does the success look like in the Phase III? I mean it is a multi...

It's a response rate at 6 months. So we look at the response rate at 6 months. And it means at 6 months. It's not there before, in the first -- it's not in the first 6 months. It's at 6 months. And we anticipate the comparative arm to be somewhere around 50, but we are, frankly -- there is no quality data to say that, but that's the best estimate we got from all the experts in the field. And we are shooting for superiority over that. So you can easily see with -- I think it's, what, it's 400 -- 300 patients in the study. So it tells you what the stats look like. I think the tolerability, the efficacy of Jakafi, as it is today, well understood in acute, will, if we have a positive Phase III and approval from FDA, will make this the new standard of care in steroid -- after steroid in chronic. That will be the big largest study in the field and it would be -- I must say, I mean there is some use in chronic already in the U.S. When we spoke about -- because, I mean it's always very difficult to track. It's a different -- there is no prescription data that you can rely on in that field. But we know from a lot of centers that they are already using it, and they are fairly happy with it.

Okay. Let's move on. Certainly, we'd love to get an update on your COVID-19 trials. Can you give us -- update us on the status?

Yes. So I mean you -- I guess now everybody knows about cytokine storm and what's happening there. I mean it is something that we identified very early. So we were, back in March and this situation came up that many of the patients infected with the virus were, in fact, developing pulmonary problem and that this pulmonary problem were an immune issue. And so that was interesting. There was a small study done in China that was already -- that was published in -- I don't remember the journal, but just published a few weeks ago, randomized study, right, showing that by using ruxolitinib in patients who were pre-ventilation, who were on oxygen at the hospital, you could improve potentially, small number, but you could -- so we decided with Novartis to go into a program where we would be doing a study in that setting, hospitalized patient pre-mechanical ventilation, to show that if you reduce this inflammatory phenomenon in the lungs, you could in fact avoid mechanical ventilation and obviously, all the bad consequences. So that's what's ongoing. That study is started together with Novartis, ex U.S., U.S. and as you see, the evolution of the epidemic, you can imagine where the sites that are the most active are, in fact, and there are not any more in New York and Milan, but in some other parts of the world. And I think it's -- the biology behind it is very strong, and it's a study. We have now new publications that have been done over the past few weeks showing that what we were -- the hypothesis we are pursuing is -- has a good rationale. And obviously, we need the big Phase III placebo. It's a real thing. It's a real study. So that's ongoing and we'll see when we can get it done. It's not clear. We spoke about the second half of the year and I think it's still reasonable to think that way. And in parallel, we have another product on the same slightly different hypothesis, baracitinib, that we have -- that is licensed to Lilly, going through the same kind of sort of revelation of the biology here. And where there are studies also ongoing with NIH and also Lilly is doing a study. So the 2 of them are working in parallel. They don't have exactly the same mechanism. So there could be differences or not. And we will see that in a few months. From the RUX standpoint, ruxolitinib standpoint, I was very clear from the beginning that we don't see it as a business driver for ruxolitinib. We are putting in place an access program in the U.S., where physicians, assuming it works and they are convinced it does and the study is positive, will have access to the product through an access program in the short term. So it should be available very broadly and very easily, if needed.

Okay. Good. Let's stay on JAK inhibitors. I'd like to talk about progress that you've made with ruxolitinib in atopic dermatitis and with vitiligo as well. And we've seen oral JAK inhibitors are working in AD. Can you put the Phase III results that you've presented so far in context? How do you see a topical agent being used vis-à-vis the oral JAKs as well as biologics? And also, I'd like to advertise our dermatology panel that we're having at 4:30 with a few dermatologists to talk about this very topic. But certainly, we'd love to hear from Incyte management as to their thoughts. And why do you think that this is an area that Incyte should be focusing?

So I must say, I mean before we got the Phase III results, we had this mindset of obviously, atopic dermatitis is important because it's the first indication, we have the Phase III ongoing and it seems to be very active and it's a great product. But vitiligo is a far bigger opportunity because it's a first-in-class, disease-modifying, unique and there has never been anything like it for these patients suffering from vitiligo. So we have a little bit of this asymmetric view about atopic derm competitive kind of business and vitiligo, where we are first-ever to have a disease-modifying treatment. And then we got the Phase III results. And then we started to look at this whole thing with a completely different angle because what we have shown in this Phase III is a level of efficacy that is unmatched. When you compare the active arm to the placebo and look at the differential in the primary endpoint, what you see is that the numbers we are coming with are, in fact, unmatched by any other type of approach. And at the same time, because we are dealing with a local skin problem, we are able to do that without systemic exposure. So then it sort of gives us this new pause of saying, "Hey, how big is this thing we have in front for us?" And then we look at the itch effect. And in atopic dermatitis, itch is a big problem because it's leading to scratching and scratching is leading to infection. And itch is leading to a number of quality-of-life issue, including quality of sleep, quality of the way people work, et cetera. So it's a life issue that can be solved in a way where suddenly, you don't expose the body to systemic side effect of a drug that is efficacious in some way. And at the same time, you can have a very differential efficacy in patients who -- where steroids are not appropriate or have already been treated with steroids or compared to steroid. So in the past 1.5 months since we got this result, we did the same thing you will do at 4:30. We got dermatologists around the table to speak of what they see and why it's important. And frankly, our mind has been shifting now to saying, "Oh, my God, this is atopic derm indication with both anti-inflammatory effects and anti-itch effect, where if you look at the label of this product that are used in atopic derm, very few of them have the claim for itch reduction at the speeds that we have in our Phase III." And then we have a safety profile that is unmatched because, in fact, the systemic exposure is very, very, very low. And we know ruxolitinib systemically very well. We are at a level that is totally innocuous. So I'm now on a sort of a new mindset of saying, "Hey, okay, the vitiligo thing is big, that we know because we have tested it again and again. And we have the randomized study that is sort of very clear about what you get. And we have now this new atopic derm opportunity where -- so we will be building a division of Incyte for dermatology in the U.S. or immunity dermatology. And we are planning to submit in Q4 of this year, when we get all the safety data, et cetera, and we would be launching in 2021. So we have basically a year, plus maybe a few weeks, but a year-plus to build a team that will be able to successfully commercialize. And we think it's very suitable in the U.S., and all the feedback we get from the research we do is now pointing to the large benefit comparatively to anything existing in atopic dermatitis.

Okay.

It was a long answer, but I can tell you it was also a very interesting shift in our mindset over -- since we saw the data from the Phase III.

Okay. And the competition doesn't scare you? I mean there's lots of things that have now shown activity.

Yes. The competition -- I mean the Dupixent patients are Dupixent patients, so that we don't overlap very much because they have an advanced type of disease with a large exposure on their body and therefore, they are not eligible for a cream. With a few exceptions, there are some patients that are overlapping, but it's very small. I think the oral JAKs will always have less JAK inhibition in the skin and more exposure systemically than the cream. So there, the benefit-risk for patients who have a local, which is -- 80% of patients have just a local size of the disease that can be treated with topical. And there, I think exposing them systemically, if you can do it topically, is something we can argue, commercially, is a very good thing to do and which dermatologists tend to agree with that. So -- and then you have steroids. So I think people will use steroids in the first visit of patients with atopic dermatitis, if they can, based on all the other limitation of steroids. And we know it comes back and we know then they will go to RUX cream because that's exactly where it belongs. As that group of patients who have received some steroids in the past topically and where the size of the disease is such that you can -- you would rather use the cream instead of a systemic treatment, that group of patients is a big bulk of the millions of patients suffering from atopic derm.

So then what about vitiligo, where you have a much more body surface area that's affected than say atopic dermatitis, which might be more focused? Is there a...?

Yes, 80% of vitiligo patients have less than 20% of their body surface area. So we are in -- that's where we go. And the earlier the disease in vitiligo, the smaller, obviously, is the size of the lesions. And that's where we are going, I think, is to be able to identify and treat vitiligo earlier in the disease, knowing that there is no spontaneous remission in vitiligo. So it's sort of growing, the size of the disease tends to grow over time. So I think having a cream, again, for all the same reasons, having a cream to treat vitiligo, when it's possible, will always be a good option. Yes, we are very excited about this new franchise, in fact. It's not something -- I mean we were following the science. We are not really strategically trying to go to dermatology, but we now look at it from the innovation standpoint. And I think it's a place where there is a very large medical need and where the type of innovative research that we do in immunology because that's really where it comes from, from our research group, is -- has a lot of potential with the RUX cream first and then potentially some other products we are developing in different types of disease for the future.

You think there's a role for itacitinib in AD or vitiligo?

No. We have other JAKs that are still -- that still have a number of those. They are not yet -- they are still very early, but we are testing other JAKs, new JAKs, in some other disease. And we have work being done in vitiligo, but with very early other mechanism. But the research we do, we have done in immunology is very handy because many of these disease have an autoimmune or immune aspect to it.

Okay. Good. Let's move away from JAKs. I'd like to talk about tafasitamab, your new asset that you just brought into the company from MorphoSys. Can you talk about -- first of all, just give us a regulatory clinical update about where you are and how do you see this drug fitting into the treatment landscape?

Okay. So I mean you know why we did this agreement. There is a very good overlap in terms of capabilities with our team in Europe and in the U.S., where we are working in hematology. And so it's a field where we have already a lot of people on the ground ready to maximize the opportunity. It is already submitted both at the FDA and EMA. At the FDA, the PDUFA date is end of August and it's under review. And frankly, there is nothing special I can tell you. The review is ongoing, and we are planning for launching in the second half of this year. So that gives us, obviously, an important new opportunity to diversify our hematology franchise in the U.S. and in the rest of the world. I think the interesting milestone recently was the EHA data, where there was a new cut that was done to pivotal study with far more follow-up. And what it shows is that in this new analysis, the complete response rate is still at 40% -- close to 40%. And the response rate itself is around 60%. And then the duration of response, the median duration of response, is far longer than it was in the previous analysis, which is leading to a median PFS, leading to a median survival, that are very different from what you see in that setting. So it goes to where does this drug fit in the treatment of DLBCL? We can discuss all the other indications we are looking at after that. But in DLBCL, first-line DLBCL, there are 26,000 patients diagnosed every year in the U.S. with DLBCL. 40% of them would not be cured by the first-line, so you end up with 10,000 patients, more or less, who are in that setting of like not -- where the first-line has not been successful, and that's where we are providing a non-chemo combination. So it is, from the patient standpoint, very different from being put on chemo again after chemo fade in some way. And it's a treatment that has -- can be given outpatient, which is very important because the CAR-T can -- are great. You know how much I feel about the CAR-T technology because I think it's really interesting. But the reality of the CAR-T technology is that in -- for many patients, it's not applicable. And for many physicians, it means that they have to refer their patients to the academic center. Here, we are coming with a drug that has a complete response rate that is not very far from what you see with the CAR-T technologies, it's around 40%. And where we have a duration of response that is in -- it's 2 years or more. So it's a really interesting, non-chemo, very deep response, very long response kind of technology. And that compares to chemo very much favorably. It compares to the other drugs that are available in that setting today also very much favorably because the safety profile is also very reasonable. So it's -- I think it's a very competitive profile. In a field where there is a true medical need and where the number of patients is fairly large, and as we have shown in the EHA data, the duration of treatment for responders, so the 60% of patients who are responding to the treatment, the duration of treatment is very long. So it could become a very interesting opportunity for us. And it just happens that the same physicians who are treating myelofibrosis and PV and GVHD are also the same core group of hematologists treating DLBCL. So we are sort of having a lot of synergies in the way we can approach that market, if you think of it that way.

It's a good fit. Okay. Wonderful. I had a lot more to talk about, but I think we've ran out of time, so...

I'm sorry.

That's all right. No, I really appreciate it. Maybe I know I want 30 more seconds. Christiana, maybe you can tell us about what you want to do with all of your cash? I mean we're estimating $1.5 billion at the end of Q2 -- you don't have to comment on that, that's just our estimate -- on your balance sheet. What do you do with it?

So yes, as you say, we have a strong cash position. We ended Q1 with $1.3 billion. We are cash flow positive. So we expect to continue to build on that position. Our plan and priorities have not changed since we did [ after that deal ]. So we continue to look at opportunities that could add to our existing programs, programs that could -- would allow us to leverage our expertise and capability. So oncology, heme are obviously areas of interest here. And programs that would be adding to diversification and growth in the -- especially in the mid-2020s time frame. So we continue to look at assets with those characteristics. And in addition to that, we have an interest in derm programs as long as they are high science and they could allow us to kick-start our commercialization activities in the U.S. Having said that, there are not many programs that are, or if any, that meet those characteristics. So it's not something that we need to do. But if we were to find a program that would enable us to start having that commercial presence ahead of the RUX cream approval, we'll definitely consider that as well.

Wonderful. Great. Thanks again for your time.

Thanks, again.

Thanks, George.