Incyte Corporation (INCY) Earnings Call Transcript & Summary

Good morning, and thanks for joining us again here at the Bank of America Healthcare Conference. I'm Tazeen Ahmad. I'm one of the senior SMID biotech analysts here. Our next presenting company is Incyte. And sitting up here on stage with me are two members of the management team. To my right is Christiana Stamoulis, who is Executive VP and CFO; and to my left is Steven Stein, who is Chief Medical Officer. Christiana and Steven, good morning, and thanks for making the trip out West.

Good morning.

Good Morning. And thank you for inviting us.

So I think Incyte is a pretty well established company, but just for formality, maybe you can talk about the company for about two minutes, and then we can go straight into Q&A.

Yes, absolutely. So Incyte is a company that has been going through significant transformation when you look over the last 5 years. If you think back in 2017, we were a company focusing on oncology with two commercialized assets and around $1.5 billion of revenues. Fast forward to today, five years later, we have eight commercial-stage programs approved for multiple indications, most of them in two therapeutic areas in oncology and more recently in dermatology with Opzelura. We have a broader geographic footprint with commercialized assets in the U.S., Europe and Japan and the revenues that have more than doubled during that five-year period to $3.2 billion annual revenues this past year in 2022. And that growth doesn't even reflect any meaningful contribution coming from Opzelura, which is our derm -- first derm product that we got approved for atopic dermatitis almost 1.5 years ago and for vitiligo less than a year ago. And we recently got approval for vitiligo in Europe, and we are preparing to commercialize or launch in the first country in Europe, Germany, by the end of this month. So there is a lot of growth still coming from our already commercialized assets and especially Opzelura that we are very excited about. In addition, we have a very rich and exciting pipeline with a number of high potential products both in dermatology and in oncology that we are looking at as potential future growth -- revenue growth and revenue diversification drivers. When you look at the dermatology pipeline, I would highlight two programs that are very exciting for Incyte. One is Opzelura, where we are expanding it by developing it for additional indications. And that's a way to maximize the potential and the potential value that we see in the program. And the second is povorcitinib that we are moving into registrational studies for HS and vitiligo, a very -- another very exciting program for us. So we will spend more time discussing in dermatology any significant future growth driver for the company. In Oncology, we have the programs that are focusing on improving over Jakafi in MDS, especially MF, and these include ALK2 and our BET inhibitor, both are in development, and we are looking for additional data later this year and for moving -- progressing this, hopefully, to later stage of development. Our program, axatilimab, that is for GVHD, we expect data mid of this year. And then we are initiating clinical development of our mutant CALR program also for MF. So a lot happening under the MDS umbrella. And then in other oncology programs, one that is worth highlighting is the oral PD-L1 program, where we are again expecting data later this year. We already have shown efficacy and an attractive safety profile with this program. This is the first oral PD-L1 to be developed, and we are looking to expand development and proceed with combination studies later this year. So that gives you a good overview of what's going on at Incyte.

Yes. So let's try to go through some of these in a little bit more detail. So let's start with your current commercial products. With Jakafi maybe, that's now a quite mature asset. You're approved in multiple different indications. It's a steady Eddie in terms of the revenue contribution that it makes. Can you talk about where you think the remaining legs of growth are either by indication or just by opportunity dollar-wise for upside from relative trends this year? And maybe you can wrap that in with how you got to your sales guide for this year, too?

So when you look at Jakafi, even though it's a program that we have commercialized for a number of years, there is still continued growth in the product run where we recently announced our Q1 results, and we saw that the new patient starts continue to grow at 8% year-over-year. And the growth came across all indications. So we saw growth in MF, PV and GVHD. So the fundamentals of Jakafi continue to be very strong. The growth of the program continues to be very strong across all indications. When you think about each one of those indications, in MF, there are around 18,000 patients that are eligible for Jakafi. And currently 55% of those patients are on Jakafi, and 25% of those patients right now are not treated. They take a more watch-and-wait approach. So you can see that there is growth left in MF, even though we have a very nice share already of the patients eligible for Jakafi. In PV, there are around 25,000 patients eligible for Jakafi. We have 25% of those patients that are currently treated with Jakafi. And so there is significant growth still remaining in PV. And PV patients tend to be the ones that stay on Jakafi are treated for a much longer period of time. And then finally, GVHD, there, you have at around 25 -- 400 patients with acute GVHD and around 14,000 patients with chronic GVHD. And when we look at Jakafi, at around 4,500 patients currently are on Jakafi. So again significant growth potential in GVHD as well. In terms of the guidance and the guidance we have provided is assumed growth -- continued growth across all the indications, and it assumes a gross to net at around 23% average for the year. It is a range. We always provide a range of around $100 million between the low and the high end, especially earlier in the year. When we look at the midpoint of the range and the high end point of the range, they imply incremental revenues of $180 million to $220 million over last year. And when you look at historical data, how much incremental revenue we get year-over-year, so along the same lines. Also, given the performance of Jakafi in the first quarter of the year and the strong growth that we have seen in demand in new patient growth, we actually increased the low end of our guidance range by $20 million to that new guidance range of $2.55 billion to $2.63 billion for the year.

Given that sales are clearly well beyond the definition of blockbuster, I think the pushback that we tend to get when we talk to investors about Jakafi per se is the upcoming IP expiration later this decade. How does Incyte think about what sales will look like post that expiration? And what do you think could be mechanisms by which that tail can be extended out even by a few years into the early 2030s, let's say?

So when we look at the revenue curve for the company and for Jakafi and how we extend beyond Jakafi, we are not looking only at the programs that we're developing to improve over Jakafi, but we're looking at the overall portfolio. So there are programs already that are commercialized like Opzelura that are going to be one of the drivers of future growth and the drivers for extending the revenue curve beyond their [ partner experience ] with Jakafi when there are a number of different programs that are improving over Jakafi, specifically for MF and MDS. And then there are other programs that we are looking to get to market before the pandemic period that again would contribute to revenue and continue to drive that growth curve and fill any gap that may have been left once you take the new product that will be improving over Jakafi and extend that Jakafi-specific curve. Steven, you may want to comment on the programs, especially the [indiscernible] related ones.

Yes. So it's sort of part of this LIMBER effort. There are two important ones within the myelofibrosis space. So one is the BET program. BET clearly is an active agent in myelofibrosis, both in terms of spleen reduction and symptom improvement. We'll have a recommended Phase II dose of the RUX by the end of this year and declare where we go in terms of regulatory path. And then the ALK2 program is a completely different MoA. It's about addressing the anemia of both the underlying disease of myelofibrosis plus the drug-induced anemia from JAK inhibition. Again, in dose escalation at the moment, we've seen Hepcidin decreases hemoglobin improvements. We can keep dose-escalating same sort of time frame, declare dose towards the end of this year and a registration path there. And then the other effort that's going only into the clinic this year but has enormous promise if it's safe and works is mutant CALR. So it will be first in class there. It's about 1/3 of MF, about 1/3 of ET. It could be completely disease-modifying for those patients with mutant CALR mutation. And then just as part of LIMBER includes graft-versus-host disease for us. Axatilimab will deliver its data in the middle of this year in terms of third line graft-versus-host disease. And then we haven't given up on RUX XR. We'll continue to address the deficiencies the FDA found, and we can get that in well within the exploration date in terms of getting that across the finish line as long as we address the issues there.

Okay. So I mean, you've talked about a lot of programs. Is it the right assumption to make then that you would like to address any drop-offs in expected Jakafi sales in the future with your own pipeline advancements rather than through biz dev?

I mean Christiana can talk about biz dev. I mean the promise of all of -- so BET is about improving efficacy in terms of spleen and symptoms. ALK's addressing the anemia component, so that's potentially a huge news. Christiana said, in MF, currently, there are about 18,000 patients in the U.S. RUX is used in about 55% of them. So there's opportunity in that. In PV, as Christiana said, the current penetration is about 1 -- 25% of the 25,000, again, opportunity there. So yes, absolutely. In terms of BD, LIMBER is one area we'll always look at.

Yes, absolutely. We are looking at BD as a way to supplement our internal portfolio and activities. So we always look for interesting assets that will fit well, not just within the inter, but the other areas of focus, broader oncology as well as dermatology. We don't rely on BD to continue to grow as a company. And it's good not to defend on business development. We have our internal growth engine, but also we can supplement with external opportunities. And we have the ability. We have the cash position and a strong balance sheet to be able to do that.

Yes, in some of my conversations with investors, I think people have brought up things related to LIMBER. So companies that might have had profiles that could have been complementary to Jakafi, like Sierra, like Imago or anything related to that. Now I mean -- I'm sure you have a team that looks at everything that's out there. But what is the hurdle that Incyte believes needs to be achieved in order to make an acquisition of an external asset worthwhile relative to the investments that you're making in your own pipeline?

We need to believe in the science. We need to believe on the profile of the product and the ability to really address -- successfully address a need. And then we also need to make sure that it makes sense from a valuation point of view. You mentioned a couple of companies, the one has an LSD1 program. We have our own LSD1 program, which we stopped. We didn't see this as a mechanism that makes sense. And Sierra is [indiscernible] we feel that we have programs in our internal pipeline that we are more excited about. So the need to also, on a relative basis, do what programs we have internally to be attractive.

Yes, of course. And then, I guess, related to that, how do you balance the need to want to invest in your own pipeline that you're excited about, while also making sure that you have a robust mid- to late-stage group of assets that can keep investors excited and bring in new investors?

So we do have what we view some very promising mid-stage assets in our pipeline. But we are always looking to see the additional assets that we can bring in. But when you look at programs like Opzelura, Povorcitinib, these are programs that will be potentially coming to market, whether it is additional indications or getting approvals with Povorcitinib as a new drug over the, I would say, next few years way before the patent expiry of Jakafi. So I think these -- and some of the other programs fall very nicely within that mid-stage type of category that we indicated.

Yes. So on the topic of Opzelura, let's spend a couple of minutes on that. So the -- it's a RUX cream that's launched in 2 skin indications, AD and Vitiligo. And the very initial trajectory of the launch last year indicated as Dr. Chak said, that there is a lot of interest in using the product. I think always in the background, there is a question of what gross to net will end up looking like. And I think based on the commentary that your team makes, that is something that you pay very close attention to, you die to it every year. At what point does gross to net become less of an effort to have to reset every year in order to achieve a target goal?