Incyte Corporation (INCY) Earnings Call Transcript & Summary

All right. Welcome, everyone. This is Gavin Clark-Gartner from the Evercore ISI Biotech research team, and I'm very happy to be here with the team from Incyte. We have Herve Hoppenot, the Chairman and CEO; Christiana Stamoulis, CFO; and Jim Lee, who is the Head of Information and Autoimmunity Development. Thanks so much for joining us.

Thank you for having us.

Yes, absolutely. So we have 20 minutes for our fireside. So we're going to jump right into some more specific question and answers. And maybe the point to start is actually with the Inflation Reduction Act. And first, I just wanted to confirm you have met the small biotech exemption criteria, correct, for -- [ at least for Jakafi ]. So negotiated price couldn't go into effect until 2029 at the earliest?

Yes. So as you know, the IRA has a lot of different components. I mean the negotiation aspect, there is a coverage of catastrophic phase, which is also having an impact on our industry. Then there is something that is very important for cancer patients and very good, I guess, for not only the patient but also the industry is the reduction of the out-of-pocket cost for patients under Medicare Part D. And then there is the inflation penalty. So for Incyte, there is a part of the IRA that speaks about the small biotech exemption, which requires a number of criteria. And all of that is based on 2021 sales and revenue, and Incyte will be eligible for the small biotech exemption, which has obviously a lot of impact. On the negotiation, it's pushing back. The chance of negotiation to a date that would be irrelevant for Jakafi because it would be in 2029. So that's the first year where we expect the pattern to be expired. It's also changing the phasing for the catastrophic phase. So it's a 7-year phasing, so it's a longer time, smaller impact. On the inflation, we don't really care because we don't increase price more than inflation, so that would have no impact. And obviously, there is a big benefit with the out-of-pocket cost being capped at $2,000 and being smoothened over the 12-month period. So it's [ $178 ] per month. And that will have an impact on patients, obviously, and potentially on our business with Jakafi. So in some way, it's more or less a good thing for Incyte. What's coming out of the IRA, it's a little bit of a paradox. But it's -- thanks to the exemption, we don't have the biggest impact with the negotiation. We have a slower ramp-up of the catastrophic coverage, and we think volume may be benefiting from the reduction of the out-of-pocket.

Yes. It feels like Incyte is kind of positioned a little bit uniquely within the IRA in terms of it maybe being a little bit of a tailwind.

Yes, it could be because we know specifically with PV, we know in PV a lot of patients are not taking their treatment because of the co-pay. And the way the Donut Hole is working, the first months of co-pay is the largest. It will be thousands of dollars in the first month. And we know some patients go to the pharmacy and they just don't take their treatment. And that will be potentially something that they will benefit from, and we will benefit from it also as a consequence.

Yes. That's great. All right. So let's switch gears here and move over to povorcitinib, your JAK1, and hidradenitis suppurativa. Since -- I saw that the Phase III trials were just recently posted on ClinicalTrials. The first question then, if you switch from a 16-week endpoint in the Phase IIb dose ranging to a 12-week endpoint here in the Phase III, what was the rationale for doing that?

Sure. This is Jim. So for the Phase II, you're not only testing different doses, you're also testing different durations. And so we treated patients in the placebo-controlled curve for 16 weeks, and we were very surprised how rapid and robust response that we saw. And the 12 week response was actually much better than we thought, and that's the duration that we selected for our Phase III studies.

And on the last earnings call, I think you noted that you're taking forward the 45 and 75-milligram doses, but just wanted to confirm that first.

Correct. We're taking forward 2 doses in our Phase III program. That's correct.

Okay. And then for these doses, have you shown any type of pharmacokinetic data? And maybe kind of wondering what your IC50 or IC90 JAK1 coverage is kind of over a 24-hour dosing window?

We do have the data, but we have not shared yet, and we plan to share it sometime next year at a scientific meeting.

Okay. And so when I run some of my powering calculations, I see that the trials are roughly 80% powered, even if you're like kind of conservative, assuming roughly a 30% placebo, 44% [ as your response ], something in the ballpark. Just wondering if you have made any kind of comments on the powering of the study or expected difference from placebo?

Yes. We obviously took the results of the Phase II study and used that to power our Phase III studies, obviously, with looking at the various confidence intervals for [ strengths ] as well as the placebo arm. We think we have plenty of power in both of the doses that we're testing and feel confident that we'll see response in both dosages.

And we're also not allowing any patients on a topical or systemic antibiotic portion -- antibiotics in the 12-week portion. Should we worry about potential skin infections maybe related to the JAK inhibition?

So in terms of JAK inhibitors and skin infection, so we have obviously the povorcitinib, which is JAK1, but we have lots of experience with a topical JAK, ruxolitinib. We have over -- close to 4,000 patients in a variety of clinical trials as well as over a year's worth of safety data. Skin infections is not something that we're seeing with either a topical application and oral application. So we're not concern that restricting the use of an oral antibiotic during the placebo-controlled period puts patients at risk. And in fact, it's critical that we don't compound the data because the topical -- or excuse me, the oral antibiotics clearly can have an impact on efficacy. So it's important not to or to make sure that the patients don't use it during that period, but we don't think that there are any safety issues by restricting the use of that class of medicines.

And how are you approaching site selection for the Phase III there? Are there any tactics that you can use to kind of decrease variability? What we've seen with HS, right, is that the early trials tend to be very noisy. But it seems like the Phase III is like what we saw with Cosentyx recently and HUMIRA too, they seem to be pretty consistent. So I guess I'm just wondering if there's any way you can kind of cut down some of the noise there?

Absolutely. So in terms of study quality, it's critical to train and make sure all the investigators and sub investigators are trained up on all of the study assessments and not just initially, but repeatedly during the study so that the quality of the data cannot be questioned. And so investigator training is a critical component of it as well as selecting the best sites, so the dermatology sites that have extensive experience with clinical studies. So those are the 2 main things that we're going to maintain, study quality and to get the most robust data possible.

Yes. Maybe the final question for [ parsa ] before moving on. What's the incremental commercial lift beyond what you've already built today?

Did you want to address that?

On the commercial team, you mean for the U.S.?

Yes, exactly.

Yes. No, we are covering the targets that are appropriate for HS as well as vitiligo and atopic derma. Remember, we launched OPZELURA, a specialty product, which at the time was sort of new and different from what most people would do with a topical firm. And so we are perfectly sized to take care of HS with that same team that we have in place.

So let's switch gears again and go over to Jakafi and some of the LIMBER combos. Actually, let's actually start with the parsaclisib combos since that one's furthest one. I'm kind of thinking about the FDA's stance on PI3K inhibitors in leukemia and lymphoma. Do you think that there's any read-through from some of their recent actions in that space? Do you think it's possible that they can kind of require some OS data for initial approval, at least kind of showing noninferiority?

Yes. I mean, before going into the past specific question, I just want to say we have ASH coming up relatively soon. It's a very exciting time for the LIMBER program. There are a lot of other there beyond the LIMBER, but we have data that will be presented with parsaclisib. So the one you are speaking about, which I think is important because that's the most advanced in terms of timing, we'll have data with ALK2. We will have data with BET inhibitor, and there is a plenary session about our [ CALA ] product, which frankly is a great recognition for the science at Incyte, where we will be discussing why having such antibodies that can inhibit specifically the calamitant type of cells is -- could be very transformative for myelofibrosis and essential thrombocythemia. So that's a big picture now we have with LIMBER is that the progress will be sort of visible at the next ASH meeting. Regarding parsaclisib, the FDA has been clear that they have questions in lymphoma and leukemia, where many of the patients have received treatment before with B-cell targeted therapies and they have very, very sales question to the point where we had to withdraw some of our application. Other company had to withdraw their entire products on what would be the effect of a PI3 kinase delta. And what the FDA said is you need to have randomized studies, and that's exactly what we are going to come to have with us. I mean the patient profile that we are going to -- that we are treating in myelofibrosis are very different from the one we have in lymphoma. The pretreatment are obviously not the same. And so what we are seeing in our study, and that's part of what will be published at ASH is that the safety profile of parsaclisib is very, very different from what you see in lymphoma. And the dose, obviously, is also not the same, is a lower dose. So we should be in a situation where we have a number of arguments to make based on the benefit we are seeing. So that's a big question of the Phase III that is ongoing is how much can we show we can help these patients who don't have any other option at that point. And we think there is a good chance that assuming the efficacy is good enough that the safety will be proven to be totally acceptable for this type of patient. So that's the ongoing study, the 304 study is the most important that the one in the sub-optimal responder to Jakafi. And that's the one that is a smaller sized study that will be next year. Probably by the end of next year, we'll have the results of that study. And it could be one of the first Jakafi combo to be submitted to the FDA.

Yes. And more from a commercial perspective, and I guess specifically about the PI3K, but I guess it potentially applies to the BET inhibitor combo as well. How important is it that you demonstrate some type of natural history benefit, right, whether that's on overall survival transformation to AML or some other type of outcome measure? Do you need that data in addition to the spleen volume and the total symptoms mark reductions? Or is the spleen and symptom score going to be enough to really drive adoption commercially?

I think from the regulatory standpoint, it's about spleen and symptom. So that's something that has been discussed. And I think commercially, it is mostly symptoms, in fact. The spleen in some way is generating the symptoms. So they are connected. We see sort of spleen responders, symptom responders is something that is not totally overlapping, but is very much connected. And that's what physicians need. I mean they have patients. These patients are all on Jakafi. Some of them, maybe 50% of them at some point will have a progression of disease in the sense that the spleen will start growing again. The symptom will become more problematic. And it is horrible. They want to -- I mean, everybody wants to be able to deal with this patient with what could be a safe and effective way to control them for another long period of time beyond what they got from Jakafi. So yes, we very clearly believe that there is a commercial potential for new therapies that will be dealing with these patients who are not fully controlled by Jakafi. Yes.

And going over to some of the other combinations, maybe for the ALK2 inhibitor combo, what's going to be the development strategy there? Are you going to be focusing on prior ruxolitinib treated patients who are anemic or kind of even for frontline combination as well?

Both. I mean that's -- I mean, think of it. I mean, we have basically anemia is coming from both myelofibrosis itself and the JAK treatment. So it's a sort of a double whammy in some way. And what we believe is that by having a very specific potent ALK2 inhibitor, which is not what -- there is no -- nothing like that available today, you could basically maintain patients on a higher dose of the JAK inhibitor and help them if they have anemia from myelofibrosis. So it's a combination that could be like a super Jakafi, where you can give a higher dose, you can have a better efficacy, and you will have a better safety profile. We will obviously do the development both in anemic patients and in frontline in a sequence that is not yet set. So I cannot tell you in which order it will go. But we are certainly looking at both. Now we are in the dose escalation phase of the combination with Jakafi. And you will see some data at ASH. I think the abstract is out and you can see, I mean, it's something that is fairly promising as a new way to use a potent JAK inhibitor like Jakafi at a dose that will be more effective than what it would be without ALK2 and with a better safety profile. We are very excited about that. I think it's a very interesting approach. I mean it's like giving G-CSF with chemotherapy. You basically change the profile of your antitumor product.

Let's cover the OPZELURA for just 1 or 2 minutes. Maybe just one on the IP. So beyond some of the patent term extensions that you're pursuing, are there any other IP that you could pursue to extend that window beyond the 2031 or so time frame?

Yes. We have been speaking of the Study 1 and beyond because we have not yet disclosed the whole portfolio of patterns. And so that's basically what we have said publicly at this stage. I mean -- but obviously, we are looking at it and working on every opportunity to make it a longer protected patent life for the product, yes.

And on your last earnings call, you noted that these patients are using maybe more like 2 to 3 tubes for atopic dermatitis in the real world as opposed to maybe 3 or 4 kind of in the trials or some of your initial estimates. I was just wondering how confident are you, I guess, that patients are actually using fewer tubes, and what may be driving this dynamic?

Yes. I think I said that, in fact, yes, it's very -- it seems like a very simple question. It's a very complex thing because we are speaking number of tubes per year. So we have to go back 1 year ago, and that's what we did. We went back 1 year ago, and that was the launch, the first month of the launch, literally weeks in fact. So we have very few patients who have gone over a 12-month period with atopic dermatitis. So that's the first issue. We have -- the end is very small. So we are unsure exactly how many -- we know there are patients who are taking 4, 5, 6 tubes already. So there are some with a very large number. And then there are some with 1 and we are still waiting for the next to be prescribed. So that's the issue is that we are dealing with a broad range. I believe in the study we were north of the 3 to 4. In fact, the 3 to 4 was what we assumed could be on the commercial side. In the clinical study, Jim, we had like a number that was...

Closer to 5 or 6.

Yes, that was higher than that. But we think that 2 to 3 is a good way to calibrate for atopic dermatitis. I must also say that there are sometimes quoting issues and vitiligo patient can be quoted differently. So it's not a super precise science. But the 2 to 3 to me seems a very reasonable way to calibrate the potential for OPZELURA in atopic derma.

Maybe just one closing question here since we're pretty much at time. Actually, on the oral PD-L1, you saw the data that was presented at SITC, avoiding some of the peripheral neuropathy that was seen previously though with the prior molecule. And I guess just one question for this one is, what's the development strategy for this program? We saw the partnership with Mirati. Are you focusing more on oral-oral combinations? Or are you also looking to kind of replace PD-1 antibodies more broadly across their treatment settings?

No, it's -- I mean, think of it as -- it's like a PD-1 with the switch off. That's what it is because it has a very short health life, you can stop taking it. So then when you stop, you don't -- and we saw that with our own product and the peripheral neuropathy issue is that it was never a big problem, in fact, because when you stop the treatment, the side effects are disappearing. So obviously, the combination -- the oral combination is important. We see with some products that the safety profile of this combination is not always ideal. So that would be one way to improve the safety profile of the combination. And then there are a number of settings where PD-1 are used alone without a combination with another IV product. If you give chemo plus PD-1, you can do it with an antibody, I mean, it's sort of okay. I mean, it doesn't add very much problem to do it that way. If you are giving adjuvant treatment with a PD-1 alone, then you could replace it with a pill, and that would be, in fact, practically very beneficial for patients, for the system, for the cost, for everything. So we are looking at it as a product that can provide a better safety because you can switch off the PD-1 effect. It's a product that can be combined with an oral product. So you see the list of products. We are starting with KRAS, but we have another -- series of other combinations we are doing with other oral product. And then it could be a drug that is used in the adjuvant setting because it makes a lot of sense in general when you use a PD-1 by itself to use an oral product versus an IV. So it is a program with a lot of potential over time.

Yes, that's great. Well, I think that's all we have time for today. So I'm going to cut it off here. But thank you all so much for joining. Really appreciate it. And thanks everyone for listening in.

Thank you.