Incyte Corporation (INCY) Earnings Call Transcript & Summary

Great. Good morning, everyone. Thanks so much for joining us. We're really pleased to have Herve Hoppenot, Chairman, President and CEO of Incyte with us. And in the audience, we do have Christiana Stamoulis, CFO, as well. So thank you both.

Herve, just to start here, a high-level outlook. Product diversification for Incyte has been a focus. And as you stand today with Jakafi, Pemazyre and Monjuvi, Opzelura in the current pipeline, what is your outlook for the business at this point and growth in the medium and long term?

Salveen, thank you for inviting me. It's a pleasure to start the year here and speak about Incyte. So Incyte is obviously about innovation and growth. I mean that's really what the agenda is for us and has been for the past 5 years. And if you look back at what happened over the past few years -- it has been really happening at a fairly good pace -- I mean we -- last reported quarter, we were growing at 20%. Now the sort of size of the organization in terms of revenue is around $3 billion for this year. So -- and it was $1 billion just five years ago. So it has been a very good dynamic in terms of growth, and the growth came from new indications. A lot of work has been done in the field of MPN and GVHD -- new products in Oncology and Hematology, which is the second bucket, and recently, one year ago, emerging into Dermatology with new products that are fulfilling a need that was really not well addressed in the past. So that's the 3 buckets of -- that we are working on. And what you saw recently at ASH and what you saw through some of our communication is that for each of those 3 now, we are really making a lot of progress, and we have drivers that are adding to our current portfolio. What's also very interesting is that in our current portfolio, we have a lot of products that have been launched very recently. So we are still in a curve that is very early. And if you think of it from the diversification standpoint, obviously, it's going to contribute in the year '25, '26, very much more than it does today. So the picture in the short term or medium term, if you look at '25 year or at '27, is obviously very, very favorable because we are anticipating Jakafi to continue to grow in the U.S. We are anticipating the launches of Pemazyre and Monjuvi in Europe to contribute additional revenue to the corporation. We are also looking at Opzelura becoming a very meaningful part of our portfolio in the U.S., and we can speak about the launch of Opzelura. It's really an interesting subject, and we are also going to launch Opzelura in Europe. So -- and it will be happening this year, in 2023. So that picture is excellent. And when you look at how we are going to manage the longer term, and that's where, at ASH just a few weeks ago, I think most people realized that there is, in fact, a very good chance that we will be able to bring new product in this window that will be changing the dynamic of the portfolio in MPN and GVHD, so myelofibrosis and GVHD, including products coming from our own pipeline that we just announced very recently. So the whole picture of the medium term and the long term, in fact, being on this growth trajectory is now looking very much better than it was maybe 2 years ago.

And perhaps we can talk here about your strategy on business development. We've seen you step in here and do collaborations, do M&A. And so what is the overall approach that you're taking as you look to '23 and beyond? Are you prioritizing certain disease areas? Does -- are there clear opportunities just given the current market conditions? And on another note, I guess, do you view yourselves as a target?

Whether we view ourselves as a target, frankly, it doesn't matter. I mean it's sort of a -- in terms of acquiring and complementing our portfolio -- so we have cash. We have like $3 billion in cash. We have no debt, so we have the ability to do a transaction. What we have done over the past 5 years is looking at different opportunities, always as either a licensing type of deal or partnership type of deal or an acquisition. And the 2 of them having obviously different financial consequences in the short term and long-term margin consequences, I’m basically trying to balance the 2 in a way where if we believe the science is good enough based on our expertise -- and our expertise is in the intersection of cancer immunology, inflammation. So that's where we came from. In fact, when you think of the JAK story, it was an inflammatory kind of science that was used at the beginning. When the JAK mutation was discovered in myelofibrosis and PV, that's where it sort of went into Hematology. And from there, we ended up in the middle of this immuno-oncology world a little bit because we came from the Immunology side more than the Oncology side. So that's where we are looking. We now have a franchise in Dermatology. So it's adding another opportunity to add to the portfolio. And what we have done over the past year is -- a good indicator of where we are going -- is be very careful with over-evaluating assets. So we have been sometimes -- have been described as being too careful because I don't like to spend too much money if we are not too sure what we are buying. So that's the bias we are trying to work with. But the Board is sort of aligned with that. They’re saying there were valuations specifically in cancer that, frankly, didn't make a lot of sense. So we were basically -- even if the assets were found typically interesting, and we ended up always being short of what other people would be paying for the same asset -- and trying to find assets that will be complementary to our portfolio in Dermatology. So what we have seen -- what you have seen recently, we did an acquisition of Villaris. So it's an IL-15 beta receptor for Dermatology, vitiligo and maybe some other indications, early, early assets, [ not ] so smaller investment in some way. We did partnership with Syndax, which was, in fact, axatilimab. We have the rights worldwide, and we are developing it very actively in the GVHD, so complementary to what we have with ruxolitinib. So that kind of deal, you will certainly see continuing. And potentially, if we were to find an acquisition of a bigger size, we would be open to doing it, assuming the price is the right one.

So let's move to the product portfolio here, Opzelura and the launch here. Can you share with us the latest update on the launch, both in atopic dermatitis and vitiligo? Does physician and patient demand remain strong here? And how do you think about the split between scripts and demand for vitiligo versus AD?

Okay. So first, I mean, the launch of Opzelura in the U.S. has been -- now it's one year old, and I must say it has been extremely successful from the patient standpoint and from the physician standpoint, who are prescribing for either eczema or vitiligo. The 2 indications are very different. Eczema is sort of acute. We are speaking of patients who have been treated with other topicals. So they are patients who are going to dermatologists because they always do not do very much or because Elidel or the other products that are used topically are not really successful. And here, what we realized at the beginning when we introduced Opzelura is that dermatologists are facing a very interesting situation where they would either go to a systemic treatment -- which at the time was Dupixent; now it could be RINVOQ or any of the systemic products for eczema -- or they have to go back to what that same patient has received already in many cases, given by GP. So it was really a vacuum. There was a real vacuum in the middle of that range of treatment from the topical to the biologics or the systemic drugs. And that's where Opzelura did up, filling that void in a way where patients could see very quickly each effect of using Opzelura. And it’s – the characteristic of JAK inhibitor is that it has a very fast effect on cytokine. And on the topical form, it is literally a soothing effect that is almost immediate. And 80% of patients in our study were able to never go to any systemic treatment and basically stay and be fully controlled in terms of the inflammation -- not just itch -- in terms of inflammation with Opzelura. So what we put in place was a system where physicians and patients could try the product, and we had a way to buy back in some way the prescription when it was not covered by the insurance company. And that ended up being extremely successful because the feedback from patients to their physician was really the driver of the adoption. Because in many cases, it was like, after years of trying all of this product, now I really feel very differently from anything I've tried before. So during that year, we were managing access through contract with the PBMs through a number of systems we had in place with the pharmacies that are delivering the product. And now we are at the stage, one year after, which is relatively quick when you look at the timeline for many of these products in Dermatology, where we have a very, very broad coverage. We have a good gross-to-net situation as we were expecting, and we communicated from the beginning. And obviously, [ the 2 ] with the volume growth and the gross-to-net improvement is leading what we are observing. And we believe that in that indication of eczema -- before we go to vitiligo -- we think Opzelura has a unique positioning today, and there is a very large potential for patients to benefit from it now that we are in that sort of more stable coverage situation. In vitiligo, it's not such an acute disease where -- scratching in eczema, you need to do something very quickly. In that case, many of these patients have had vitiligo for -- we had patients in the study -- for 35 years, who, in fact, ended up repigmenting when they were treating with Opzelura. So it's a situation where a lot of patients have been treated with something in the past, not -- have not been seeing a dermatologist for a long time because, frankly, nothing works. And we have a number of patients who are under active treatment. So we think it's around 150,000 to 200,000 patients who are seeking treatment for vitiligo today out of 2 million patients or 1.5 million patients who are suffering from vitiligo, and they, as a prescription, is leading to a treatment that has a duration with refills every month that can go to -- I mean, we have seen in the study up to 52 weeks. And I must say, I mean, the launch in vitiligo has been, in large part, driven by enthusiasm from patients. And I was joking earlier, but if you go to TikTok or Reddit or many of these places, and you will see a lot of Opzelura patients who are basically taking picture and showing the progress of their repigmentation relatively quickly after initiation --selected group, obviously. But I think it's a product that can change the life of many of these patients suffering from vitiligo in a very meaningful way. And we tend to underestimate how deeply impacting vitiligo can be. There are patients who don't care. We all hear that, but there are vast, vast majority of patients who go through a number of -- trying different strategies using makeup, doing many things to manage the vitiligo situation. And frankly, when they see what's happening when you use Opzelura, it's a lot [ and they go like ] think about it. I mean we are speaking of million-plus patients who potentially could benefit with a treatment that takes between 6 months and a year or maybe for some patients, a little longer. So it's a very large potential for Opzelura, and we are in this space now where it's growing. Now how many prescriptions are for eczema versus vitiligo today? Frankly, I don't trust the sources that we have. I really don't because when I look at how they are calculated, I’m feeling like it's not really certain. So we don't speak about it, but you can imagine that you have double-digit growth of Opzelura patient number. That's what we spoke about at Q3. And now on top of that, we have the growth coming from the new vitiligo patients. And vitiligo patients are obviously a very different number of tubes per patient per year than we have in eczema. So that's the sort of the dynamic of Opzelura, which I believe is going to be a very large contributor to Incyte's revenue over the next many years. So it's a great situation. And we are launching in Europe this year. So the CHMP EMA process is ongoing, and we are expecting like midyear type of launch for Opzelura in Europe -- in vitiligo where we reversed the sequence in Europe.

Should we expect different trajectories for growth for both these indications?

You have a cumulative effect in vitiligo that is less there in eczema. So there is a chronic aspect to the vitiligo curve that is less present in eczema. So yes, you could potentially assume that vitiligo will have a cumulative effect that will be slower maybe at the early stage of the curve, that will lead to a bigger curve where every patient will be using -- we use the number of 10 tubes per year per patient. In fact, we don't know yet. So we'll see on the commercial side -- in the commercial setting, how it's doing. But yes, we think there will be an accumulation of new patients with existing patients in vitiligo that will be stronger than what we observed in eczema.

So turning to the reimbursement side, could you comment on the progress you've made here on percentage of covered claims and have you reached that 40% to 50% gross-to-net number you were targeting by year-end?

So we'll see -- when we speak about Q4, we'll see about that. What we said in Q3 is that we were making progress very consistently. We did something that, frankly, after the fact, I was thinking, I don't know if it was very wise. We basically gave everybody a curve of what we were expecting to see in terms of gross-to-net, which is our intangible because predicting the future is something that you can never be sure about. But what happened is very much in line with that curve. It was driven by our early ability to have PBM contracts. Think of it from the payer standpoint, if the choice is to go to a systemic treatment like Dupixent or RINVOQ or to have patients controlled with Opzelura, in fact, it's a very good deal for them in terms of cost for the insurance company. And -- so that part was done very early. The distribution itself went through a little bit of an adjustment because many of these pharmacies specialized in Dermatology were not used to something like Opzelura, in fact. And so that took a few weeks, months to get done, but what we see now and what we are seeing in the past few months is very much stabilization, aligned with our predictions that we will be entering '23 with a very good amount of claims being covered. At the end of Q3, it was north of 70%. So it gives you an idea where it's going. And then fueling the growth from the volume standpoint would become easier because all the systems are in place and people are getting used to the paperwork. I mean it's a product that requires prioritization. So there is a little bit of paperwork that needs to be done. And now people are used to it, and it's working really well.

So are there any hurdles or outstanding issues that need to be dealt with in '23 on the payer front? And maybe help us understand on the gross-to-net side if there's a difference between the 2 indications.

So there is no difference -- the gross-to-net is basically the number of discounts, co-pays that are impacting the way we are booking the net sales versus the gross sales. So it's very simple. In there, you have the distribution part. So that's the same. It's the same for both. We have the PBM discount. It's the same for vitiligo and atopic derm. So there is no difference there. And then you have a few small things and then you have the co-pays. And the co-pay is obviously the one that is swinging with the evolution of the coverage and the listing in the plans. And that co-pay has been obviously evolving very much favorably and is the same for both AD and vitiligo. So there will be no difference. In fact, if we were calculating a net price, we would have different access situation where sometimes there is a prerequisite for some prior treatment in atopic derm, like steroids or Elidel, et cetera, where vitiligo is a first line for many of the plans. But in terms of gross-to-net, it will be the same calculation for both indications.

You reported a really nice Opzelura sales number in 3Q. Help us understand what drove that number apart from demand. Were you seeing finally the reimbursement issues may be mitigating here? And was there any aspect of bolus coming from vitiligo?

So in Q3, we had some vitiligo patients, but it was not the main driver of what happened in Q3. What's happening in Q3 is the buy-down program, what I described as the sort of the way we wanted people to use the product to benefit from it and to learn how good it is. The buy-down has been removed from the gross-to-net calculation as -- over time. And in Q3, there was a clear improvement of that gross-to-net calculation. That was coupled with the volume growth that we have been observing both in atopic derm and the beginning of the vitiligo number. So it's not a bolus of vitiligo. It's literally the stabilization of our gross-to-net situation that we were predicting would happen and did happen in Q3.