Incyte Corporation (INCY) Earnings Call Transcript & Summary

[Audio Gap] data in Phase III and vitiligo, and vitiligo is one of the disease where today, there is no medicine approved. And obviously, it will be the first of its kind to have a disease-modifying effect, if approved, and it's a form of a topical JAK and a number of other programs where we made a lot of progress. On the right is the size of our revenue of $2.5 billion more or less in 2020, growing at around 20%. And as you can see, coming from research that was done in-house and products that we have developed ourselves. Now when we look at 2021, obviously, we have a number of approvals that are subsequent to the submission we did last year. There are 7 of them. We already received approval for pemigatinib in cholangiocarcinoma in Japan and Europe, and we are now in the process, hopefully, of getting approval for RUX cream in atopic dermatitis, for retifanlimab, an antibody against PD-1 and Jakafi in chronic GVHD in the U.S. and the tafasitamab Monjuvi in Europe. And our partner, [indiscernible], are also looking for new indications for Olumiant baricitinib in atopic dermatitis. And on the right side, you can see the new applications that we are doing this year, one of the most important being parsaclisib, which is a new product, PI3 kinase delta in 3 different forms of lymphoma, JAK cream in vitiligo. And assuming some of this or all of this is successful, it will obviously give us a number of new growth drivers, which is what we are trying to maintain as we have been growing at around 20% over the past years. So as we develop the portfolio, we also develop the footprint, and it's very important because as we know, cancer is not limited to the U.S., and in the case of cancer, it's very prevalent in countries with an older population. So it's Japan, Europe and North America, and that's exactly where we are located. With now a number of countries in Europe with our own office, we have an approved product in Japan that was developed by us and is being launched as we speak. And obviously, in Canada and U.S. where we are also developing our portfolio. So the company is growing in terms of size of the portfolio, and it's also in terms of footprint with the goal of being in Japan and Europe. And we have an office in China where we are working with partners up to this point. And speaking of partners, it's part of what we do. We have a number of deals that have been done mostly on technologies or on commercial partnership like with Novartis, where we are co-developing and co-commercializing ruxolitinib with where it's licensed for baricitinib. And more recently, we have new agreements that have been done with companies like Cellenkos, who are providing technologies, cell therapies that could be used in some of the diseases where we are already in a position of leadership or Innovent or Zai Lab, who are partners for our portfolio, part of our portfolio in China. So that's sort of the business side of the organization. Now trying to zoom, if we can, on the global responsibility aspect, there are 5 dimensions we are looking at. The first one is the same I have been speaking about for the past 10 minutes. So it's really how do we address patients' needs, can we cure cancer because that's really what everybody has in mind. We have -- now the use of that word is becoming acceptable in the field where a few years ago, when I remember starting 30 years ago, nobody would dare use that word. Now it's becoming something that is in sight. Maybe it's not there, but it's not too far. Obviously, the community where we live in every country where we operate. The big question of the team and how do we attract the best possible people to be part of this organization and produce the high-quality science that we need and the impact we have on the environment. So I will speak about 3 aspects of this. The commitment to the unmet medical need to me is the absolute key to this global responsibilities that we have. And what it means some time is to study mechanisms that we have coming from research in disease that are of sort of limited scope. And my experience with now a number of years of developing new cancer drug for rare diseases that, in fact, in many different ways, it becomes a commercial success because some disease are rare because they are not well diagnosed. And when the product becomes available, the diagnosis is going up, and it becomes a more meaningful type of opportunity. And you could look at Jakafi, which is a sort of a business success, if you want to describe it that way, where, in fact, the type of indication where we developed it for myelofibrosis. It was the first ever product approved for myelofibrosis in polycythemia vera, or rare type also blood disease where it was the first product to be approved for that indication. Then we moved into GVHD, graft-versus-host disease where there was never an FDA-approved product before and where Jakafi became the first product for that indication, 3 relatively rare type of disease where, in fact, at the end, it's producing an important part of our revenue. You could look at Pemazyre, where we are now launching it in a rare form of intrahepatic cholangiocarcinoma. With the type of mutation in the FGFR domain and where we have new indications coming, also relatively rare, but where it could, at the end of the day, be contributing also to the growth of the organization, et cetera, et cetera. And frankly, when we look at some of the indications we have been pursuing with topical ruxolitinib, vitiligo -- we started with alopecia areata and vitiligo and atopic dermatitis. Our goal was really to look at the unmet medical needs and to apply that science to where it would be the most useful to patients. So that aspect, I think, is fundamental to the mindset of the corporation to the way we are running our business is really to go in places where other products, other medicines have not yet been useful or been proven useful. On selling talent, there are so much we could sell about it. I want to say basically to articulate it around 3 concepts. One is that everybody participates in our stock plan. So that's every employee of the corporation. I think it's very important to align everybody around the same economic interest. And that's something that we can do maybe because of our size today, that we will certainly try to continue to do for as long as we can. So second aspect is very specific to the U.S. It's basically recognizing that health coverage is right. It's not something that should be considered the choice that people may or may not decide to invest in. So we are basically self-insured. We are covering 100% of our employees, full-time, and we have a very low participation from employees to the health coverage. And we have a coverage that is very broad. In fact, most of the care given to our employees is translating into a $10 co-pay. That is a standard number that is used across all kind of different technologies that they would need for their health. I think it's something that it's very specific to this country, but it's also part of the industry we are in, where our first duty is to make sure that everybody working in the corporation has access to the top-quality health care that we can. And the third aspect is about innovation. And we have a program, we call it I2 innovation at inside, but it's far beyond the program itself. It's basically making sure that people understand they can do research, they can do initiatives that are not something that comes from the top, but where there is a little bit of wisdom of the crowd kind of effect. And we have seen that again and again on many of our program where either because of the new technologies that now we have access on the commercial side, where we have people who are driving this innovation agenda that we are trying to promote here, but also on the research side, where we have biologists coming with idea of new indication for our product. And vitiligo for attract was, in fact, one of them. And then we will take that very seriously and move it to the next step and try to develop it and make it become reality. The third aspect is, obviously, the environment. So you have -- we are in a company where we are trying to obviously reduce our carbon footprint. So that's something that we have been doing through the usual ways that companies are using. We are very obsessed with the issue of waste and water and how it is treated before it is rejected. We are almost there, not yet at 100%, but it should be very soon. And then we are offsetting the measured carbon that -- measured emissions of carbon that we have been tracking. And obviously, as we increase the tracking across the world and across all the different aspects of carbon emission, our goal is to stay neutral as we were today and certainly to have full carbon neutrality for what we can measure by 2025 or before because there are a number of initiatives that we are taking to get to get to that point. We are one of the industry where it's possible. I'm not saying it's easy for everybody across every industry, but it's certainly possible for us. So we want to be a little bit of -- maybe an example that you can grow and develop economically and at the same time, not do it by sucking resources out of the environment and destroying part of it with emissions. Now I want to close on the back to where I started, which is basically what matters is science. I mean, it's really important because I've been part of this cancer research adventure over the past 25, 30 years, in fact. And I remember, way back in 1983, '84, the median survival for patients with breast cancer was counted in a few months with metastatic breast cancer. Today, after a number of discoveries. And I take breast cancer because it's a very symbolic aspect of this progress. We have been able to identify the patients who benefit from certain treatment like HER2 and Herceptin. We have been developing new technologies in terms of hormonal treatment, like aromatase inhibitors. We have been bringing additional new products as recently as some form of ADCs that will be targeting the most refractory type of cancer. And by doing all of that together, as an industry, we have been able to reduce the mortality from breast cancer very, we have done the same in many hematologic malignancies. And you can see from this curve, looking just at the past 20 years that there is a clear effect of this new drug discovery process on the cancer death rate. And when we speak about how can we get to a society where cancer will not be treated the way it has been historically and where it will be a situation where physicians will have the tools to tell your patient, hey, you have this form of cancer, but we know exactly what to do for you. I mean it's not so far aware. And I think our key responsibility as biotech, biopharma companies is to be able to continue to do the research that is so valuable to society. So I will stop here. And if you want, we can move to Q&A.

Excellent. Thank you so much, Herve. So let's get started on some questions. I wanted to start with what you had mentioned just a moment ago, that although you are a small and growing company that you have an eye on these issues of sustainability. So what -- as a CEO of a smaller biopharma, what is the message that you want to send to your investors about your ESG initiatives?

Well, I mean, first, the message is that it's very important, but it's not just important as a sort of a charitable aspect of the company. It is inherent to who we are. And you'll be surprised. I mean I have meeting with every employee. So I'm meeting with everybody when they joined in the first few months after they joined, [indiscernible]. And it is a message that is absolutely key to why people want to work for Incyte is that we are a company that is not -- that is respecting the environment that is very patient oriented that is very oriented about respect and how people are treating each other. It's all about diversity. It's all about accepting different cultures and that's where people want to work. And so if you want to attract the best talent in the world, which is what we are trying to do, obviously, I think it's a question that is not even part of -- nice to have as a sort of last chapter in the presentation. It's inherently what we are doing every day because the people of inside with the employees of inside are demanding that the company be on the cutting-edge of that field.

So we do have a question here. About your employees, are you seeing more interest from your employees in the company's commitment to ESG?

I think there is a clear -- there are 2 big things that happened over the past 1.5 years, let's say. 3 of them, in fact. So one of them is how do you work remotely. So that was very interesting. I don't know if it has anything to do with ESG, but I think it's very connected to this like how do you organize work-life balance for everybody at Incyte in a way that is leading to high performing teams. And I can tell you, the answer is not easy. Because that really depends on the job. We have people in the lab. They have to come here every day anyway, and they're driving a lot of the sort of the creativity and the innovation that we have at it's not as 1 big subject, obviously, that everybody is dealing with. The second one was about diversity and very specifically about black Americans and their place in a company like inside. And again, it's not -- so we have a group of pillar. We are working on that very actively. In fact, we -- Incyte is a very diverse organization, extremely diverse from people coming from all over the world. But the representation of black Americans that insight is lower than what it should be. So we have put in place an entire program. And a lot of people volunteer to participate to that. In fact, we have a working group of 80 people to work on that subject, which is basically hiring, supporting, mentoring and organizing some of the economics so that we will prioritize black-owned businesses in Wilmington, Delaware, et cetera, et cetera. So it's a big project, and it was very, very much bottom up. I mean, a lot of it for us was to sort of get people in the same room, but from there, it was going very quickly. And then on the green side -- green aspect of carbon and waste and the energy consumption and how we are dealing with it. It's also something that people will take personally. I mean, they want to be part of a clean, green company and frankly, we don't -- there is no need to generate a lot of ideas from the top. A lot of it is coming as a bottom-up process. So I think inherently, people working in bio type of organization are very personally attached to the idea that we can do what we do. We can contribute to the world health improvement and do it in a way that is not basically destroying environment and very inclusive way that would be, et cetera, et cetera. I think it's part of what people want, what people need.

So here's another question about partnerships. Are you thinking of partnerships to help expand use of your products in emerging markets including how to help strengthen health systems necessary to support their use?

No, exactly. So today, our footprint is basically Europe, U.S. and Japan. I must say one of the most dysfunctional health system in the U.S., obviously, as we know. And that's a big effort we have to do to try to provide access to our products in the U.S. because the U.S. is one of these countries where Medicare is asking a very large amount of out-of-pocket cofinancing of medicine, which is, frankly, in the case of cancer, it's very difficult to understand because I don't know anybody of using their chemotherapy. I mean, that would be -- so the reason why we have this system in place in the U.S. is something that, frankly, we are trying to improve, and that will take changes in the Medicare system. And then for countries outside of Europe, Japan and North America, we are working with partners, and this partnership are being developed as we speak, where, obviously, they will have to operate in a different type of health care system. And if possible, impact it in a way where it will broaden the use of the product. I think it's not realistic completely to imagine that every product will always be available everywhere in the world immediately. So it takes time. And there are obviously different approaches that can be done, including [ early-access ] programs that will be specifically for cancer products because I think cancer products should be available for everybody who needs them. So the cancer situation is a little different from other type of therapeutic areas, I think.

So the access piece is pretty specific, of course, to biopharma and their objectives. So could you speak more about that access? You said you have expanded access? Are there other philosophies or actual strategies in place for access?

I think they have to be very specific to the country where you operate is that you -- I mean, I remember I was part of the Gleevec story, which was -- it was fairly stunning because that was like if you get access to the drug, you can have a normal life expectancy. If you don't, it's a big problem. And so in that case, it was really like discussion with governments of saying, how do we organize an access program so that people will have a possibility to have the drug. And sometimes, the health care system is such that the problem is diagnosis. It's not enough diagnosis tools, so that patient will be identified with that form of CML. And then the second part is discussion with government, saying how can you contribute to the cost of the product in some way? And there are cases where it can be based on the old way of thinking, which is a cost per milligram per tablet, or it can be a fee that is, in fact, attached to a program, giving access to everybody in a given country. It's a bit like -- a little bit like what you see for like a software-type of approach where you pay a fee to use the software. In fact, what we do in biopharma is not very different from software because it's all about the intellectual aspect of building and creating and developing a product. So access to a product doesn't need something based on the per tablet per milligram. It can be something based on transaction. And with some countries, it's probably the best way to do it that are more like a feed to have an opportunity to use the drug for patients, all the patients who need it, et cetera, et cetera. I don't think there is one recipe that works and can be applied to the entire world because, frankly, what's happening in Latin America, in Asia, are very different. India by itself is a specific challenge and many other dimensions. So it has to be something done locally. And for Incyte, we are working with our partner to try to have programs that will be addressing the need as we are developing this new product.

Thank you. And we have a question. What are the key ways you are investing in innovation for the long-term do you consider this long-term investment as part of your R&D going forward?

Well, as I said, I mean, we have hundreds of people working in the lab here in Wilmington, Delaware, we have probably 400 people in there. Today, they are working on projects that will be -- maybe if we are successful getting to market in 2030, '31. I mean, so that's sort of the horizon we are working with. It's very important to understand that when we think about the way the industry is investing because if you want to satisfy shareholders with earnings per share every quarter, like always, looking at that sort of 3-month kind of horizon. It's always something to reduce R&D, long-term R&D because in some way, it will not be visible for a long time. I think it's part of the discipline we have to continue to have this long horizon, and it has to be productive. And we showed that in our case, we were able to discover. So chemistry was done here in our lab to develop and commercialize 4 products already in the past years. And that if you can maintain that quality of innovation, then it becomes economically the best way to be very successful because they are products with no royalties attached. It's not the same as doing it through business development. So doing your own research is fundamental. It's also fundamental because if you want to be able to do good business development, like acquisition of assets where you -- we cannot invent everything that has to be invented. So they are complementary technologies that can be needed. The way to do it is to do it if you have your own research in the same field because then you can identify the good assets in a way that is very different what somebody who has no knowledge of the field would be able to do. So it's something also very important to us is to keep the basic research in-house, not as the exclusive way to access new products, but as the best way qualitatively and financially to fulfill the goal of the corporation, which is to continue to grow, to innovate and to be sustainable over a long period of time.

And with your science-forward approach, how does Board governance play into sustainability strategy?

The governance, you mean at the Board level?

Yes.

So what we have is, first, we have a very active Board. It's a Board made -- there are 3 active biotech CEOs on the Board today. There are -- we have a number of people who are in the field. And so the Board at Incyte is a milling where a lot of -- the level of granularity of what we are discussing is very high. I mean, we go in a fair amount of detail. As I said, the sustainability aspect of it is based to research and long-term research. When you look at the ES -- I mean, the ESG, like the environmental policy, we review it with the entire Board. We don't have a specific committee for that. We have goals that we are trying -- that we are discussing and agreeing on. So it's a fairly basic part of the business that we are discussing, and it's not a separate chapter. In fact, it's part of the core business, discussed with the Board as we are setting the goals once a year, presenting them and then discussing where we are versus our objectives. I hope I was answering the question on...

No. I think the Board governance and the committee piece that you're speaking -- that you mentioned with the diversity committee that you have in the company and the Board governance towards sustainability. So you might be earlier on in some of these initiatives as far as like having a whole structure in place, but you have that forward-looking view, right? So your Board incorporates the sustainable issues, the environment, the access, those kind of issues, the D&I, so I think...

No, it's completely that -- what I'm saying is that it's not -- it's a small board. It's not a separate committee. In fact, it's a full board discussion when we have it.

Okay. Excellent. So as far as the -- what is included in your carbon neutral ball? Does that include scope 1 through 3 or just scopes 1 through 2?

So now we have scope 1 through 2. So that's done. We are basically quantifying and neutralizing our emissions. And this year, we are moving to scope 3, where we would be 2 and 3, and we will be quantifying it and also finding solutions to neutralize it in some way. So there are some specific situation where we have a manufacturing facilities that is -- where all the electricity is coming from a lake. And somebody is telling me, yes, that's what I'm saying. We are starting the process of measuring scope 3. Just in case I was -- so scope 1 and 2 operational, scope 1 and 2 is what we are neutralizing today. We are measuring scope 3, starting to measure it. And the goal is to neutralize it by 2025, either by reduction where we can or by different strategies. We have been partnering with an organization in Mississippi planting forest. So that was the way we did it for this year. And it's an independent foundation. So the quantification is done by them. It just happens that our biopharma business is not extremely carbon producing in some way. We are on the low end, probably in terms of value added, it's a relatively modest part of it. So I think we can do it before 2025.

Excellent. What are the biggest challenge Incyte is preparing for next?

Well, I think the biggest challenges are probably access. I mean, if you think about it, because we are we are in this long cycle, as I described it, what we do is really 10 years or 8 years of investment to a project. So some of it don't work. Some of it works. So you have to cover the entire portfolio. And when it becomes available, the question is who is going to pay for it. And that's really something that you can see around the world is challenging. So I think what you don't want is to do what we do, just for people who have money and basically let people who don't live and die without access to your technologies because many of them are really, really useful and are changing the life of patients. And that, I think, is a key challenge is how do we find ways that government because it has to be insured, you cannot be self-insured for cancer. It's just impossible. And the medicine is not the biggest part of it. I mean, the big part of it is surgery, radiation, hospitalization, et cetera. So it has to be something that is done [ government. ] So there needs to be a socialization of the risk, and that's insurance, and it can be government or private, but there needs to be access to new technologies when they become available. And I think that's the biggest challenge.

And will you work to integrate aspects of progress made against ESG issues into your earnings calls?

Yes, we started to speak about it at the last earnings call. So that was our -- coming out with the goals and where we are. And obviously, we have been -- it's incomplete in many ways because we are starting. I think we worked on this project now for 2 years, formally. We have a team. We have people working on that. And we -- as the last earnings call, we spoke about the frame and some of the goals I was describing to you, and we'll certainly update everybody as we are going because it's -- I think it's important. And I think we'll make a lot of progress because we have started sort of recently announced that the progress will be fairly visible over the next 2, 3 years. I mean it's still taking shape. And there are issues of quantification of carbon, as you know, I mean, it's not something we do it a certain way today. I mean there are a number of methodology that need to be developed. And frankly, I think companies need to use the same methodology. There is a real need to have way to be able to compare what Incyte is doing to others in the same field, so that we are speaking with the same unit, the same kind of scale, et cetera, which today is frankly not exactly the case. So I think that would be part of the normalization of the -- in the next few years, part of the -- one of the important thing is to normalize the way we are counting.

Yes. Yes, definitely to have those kind of metrics and things. And that's why it's important. I guess, to have the different-sized companies here today and tomorrow presenting, so you can level set and get to that place, right?

Yes. Yes.

Well, thank you so much, Herve. So we're going to reconvene at 2:20, but I want to thank you and everyone else for joining today.

Okay. Thank you very much.

Okay. Take care.