Incyte Corporation (INCY) Earnings Call Transcript & Summary

All right. Good morning, everyone. We'll get started with the next fireside discussion. My name is Derek Archila. I'm one of the senior biotech analysts here at Wells. Very excited to have with us for the next discussion, Incyte. From the company, we have the Chairman and CEO, Herve Hoppenot; and also the CFO, Christiana Stamoulis. Thank you so much for joining us.

Good morning. Thank you for inviting us.

Yes. Well, look forward to the discussion.

But maybe, Herve, if you want to just start by kind of giving us kind of a state of the business, where you guys are and what you guys are executing on, and then we can kind of start to dig into the questions, would be great?

Okay. So yes. So where we are, I mean, basically, it's like the usual 2 big question is how is the business doing. How is the product of portfolio and the pipeline evolving. So on the business side, obviously, Q2 was a very strong quarter, and it was -- the top line was growing north of 20%, which for the size of our business is very good. And it is basically coming from -- I would say, finally coming from diversification out of Jakafi. So Jakafi is growing but it's growing at a lower rate of growth than the rest of the portfolio. And most of the growth is coming from the success of Opzelura, which is obviously something that everybody is watching. So it's a very good sign. We can go into the details on what's happening on the Opzelura front, but you have basically the base business with Jakafi that is still growing, and we can speak about that because it's important for the next few years. And you have now the new oncology business launching in many countries in Europe, outside of the U.S. and Opzelura where the U.S. is the main driver of the growth. And all of that is really evolving very well. On the pipeline side, we had 2 pivotal studies with positive results that were announced during the quarter. One is atopic dermatitis in children for Opzelura and the other one is a new product, axatilimab in GVHD, where we have data that potentially could be used for registration. And it was in fact, very good data in terms of efficacy and safety. So that's important for the late-stage pipeline. And we have a number of projects that are moving very well now in, what we call, LIMBER which is our life cycle management for MF, GVHD and the PV. And obviously, with other mechanism where we are making good progress like povorcitinib in multiple indication and oral PD-L1 in also many indications in cancer. So both on the IR and on the cancer side, now the company is well balanced with top line growth and with an evolving pipeline that is doing very well. So it was -- Q2 was an important quarter for us because it was a proof of the potential of Opzelura, which I think is something everybody has been waiting for, and at the same time, a lot of progress in the pipeline.

Got it. Excellent. Maybe just to start off and kind of on the Jakafi front, that base business. Where do you kind of see the growth drivers for Jakafi here in the near to medium term? And ultimately, you have some more competition starting to come in, in kind of the MF area. How are you guys thinking about that market also as kind of being either a future growth driver or is it more an area where you might see flatter growth?

So there are 3 different components of the business for Jakafi in the U.S.; GVHD, PV and MF. As we have spoken about, MF is the largest now, probably 45% to 50% is coming from MF, then PV and then GVHD. GVHD is the fastest growing because we were just launching over the past 2 years. The largest potential is in PV. And so if you think of the dynamic of each of those 3 components, what we are planning to see happening is PV growing faster and at some point, becoming the largest of the 3 indications, followed by MF, followed by GVHD. So that's something that has been happening slowly. I think it will be accelerated by the IRA, in fact, the reduction in the [indiscernible] will have a disproportionate impact in PV. And that's the way we see it. The new -- frankly, the new momelotinib to be clear, that should be approved today or tomorrow or very soon. So we'll see what it says. It's just one more product that will be available. It has been studied in patients who have been already treated with Jakafi. It could be helpful, in fact, for Jakafi by providing a new line of therapy that can be used after Jakafi because we know in MS, there are 35% of patients who are not receiving any JAK type of treatment. And the reason for that is that physicians would rather wait to initiate treatment because they don't have a very good second line. So having better further lines of therapy is always a good thing. And we think it will be another of this potential treatment after Jakafi. Jakafi is very well established as a standard of care. It has a survival benefit that has been seen. So benefit is equivalent in patients with or without anemia deadline. So it's not like dependent on the anemia status of the patient. And we think it has a very strong position and it will continue to have it. As I said, MS is like half of the -- or less than half of the overall business of Jakafi, and we see the growth profile for Jakafi to continue over the next year.

Like how do you think about that growth profile? Is that going to be kind of like mid-single digit, high single digit? Like how does that kind of evolve over the next couple of years?

I think with the size of the existing business being what it is, you have been seeing already over the past 10 years, the growth rate has balanced to -- in percentage to go down. Obviously, we have had new indications that have been helping over 4 new -- we have 4 indications today. So it has been helping keep the growth. I think that growth rate will continue in the number that will probably be getting smaller and smaller over time, which is logical when, in fact, the growth, the absolute growth in data has been fairly stable from 1 year to the next. I mean, it has been around $200 million a year over the past few years.

Got you. And then maybe you alluded to it a little earlier just in terms of like the LIMBER programs and life cycle management for Jakafi. I guess walk us through kind of the different programs that make up the overall LIMBER strategy?

So that's the most important aspect of this. So we have basically 3 ways to look at the life cycle management of that franchise. One is -- so once a day. So the once a day is a very simple way of thinking. We have a drug that is twice a day, you could replace it to this once a day. It's better. It has a longer life in terms of IP. And that -- so we went through, in fact, a fairly disappointing situation here with the FDA asking us to continue to provide additional data or to provide the new formulation to be able to do that. The program has been unfortunately delayed, but we are speaking with the FDA today to discuss the existing formulation and the new data that we have that could be not fulfilling their needs. I think it's a low probability of success, frankly. And then we are, at the same time, working on a new formulation that would be helping deal with the question, which is about [indiscernible] and how we can make it fit the criteria of bioequivalent. So that's ongoing. In the best-case scenario, it could go relatively fast. And as I said, I don't think it's a high probability. In the worst-case scenario, it would take probably another 1.5 years to 2 years to get it fully done. So it will still be in the window that we need versus the [indiscernible]. The second aspect is in myelofibrosis to improve efficacy and safety of the current treatment. And that's what we have with the BET and the ALK2, where we are now in a phase where we are finalizing our Phase II, we are planning to be in pivotal study in 2024, and where we will be able on the BET inhibitor and you know there is another BET inhibitor that will have results relatively soon, where we will be able, hopefully, to improve efficacy in terms of response, symptom and spleen size. And with ALK2, which is a very different approach where we are basically modulating ALK2 with the goal of improving anemia. And what it does is, first, obviously, potentially reduce the need for blood transfusion, but it also allows us, and that's the most important part of this, to use a higher dose intensity of Jakafi. So all of that is ongoing. It should be in pivotal studies next year. And then we are looking at outside of just life cycle of myelofibrosis, new mechanism that can be applied in a different type of MPN like CALR. So we have the first CALR antibody in the clinic today, and that's a mechanism that could be helping with a disease modifying type of mechanism for around 30% of patients with MF and ET. So that would have done a new potential in the different indications. So all of that is evolving very well. And what you can see over the next 5, 6, 7 years, is that the goal will be to have a new franchise in each of these indications or at least in MF and potentially now in ET where we would be, in fact, leading with new mechanisms that have a clear clinical benefit.

Got it. And just going back to your comments on the BET, obviously, we have covered more process. And is there any differentiation between the BET inhibitor, you guys are putting through trials and developing versus collaborative? I mean, I don't know if you've looked at that, I don't know if there's any data out there?

So -- I mean, the schedule of administration is different, is that we have a continuous administration where, in fact, pelabresib has 2 weeks on, one week up. So it's a different way of using BET inhibitor. It's a different way of managing what is the dose-limiting toxicity of thrombocytopenia, which is on target. So you cannot avoid it. And I think the clinical data will tell us if there is a differentiation. At the end of the day, what we see is that even if they are aware of the same type of clinical benefit, I mean, we would have obviously the advantage of being able to combine it in a fixed dose combination, and that would have certainly a commercial effect that is very different. The other aspect is where -- what type of patients you develop it in. So it will be interesting to see that data, I think, before the end of the year. To see that data in the first-line setting, we believe, in fact, the best use of this type of products, and we had the same way of thinking with pelabresib data is more in the suboptimal responder and in the first-line setting.

Interesting. Okay. And when will we see more data for both the ALK and the BET?

I think you will see it as we are now in this phase of dose escalation, dose optimization, combination with Jakafi to prepare for the pivotal studies. I think you will see it as we go in the [indiscernible].

Got you. So maybe shifting gears to Opzelura. So obviously, you talked about that earlier in your comments about -- that's kind of helping drive the growth. Maybe you can just kind of give us the state of affairs there in terms of like how that -- we're kind of deeper into the launch now, how that's looking and then also kind of uptake in vitiligo? Obviously, a very interesting opportunity. I think first drug approved there. So definitely a very interesting kind of launch story going on there. So maybe you can provide some color there?

Yes, I think both, atopic derm and vitiligo are very interesting launch stories. I mean, in -- so we started with atopic dermatitis in eczema, so efficacy profile of Opzelura is unmatched. I mean, the speed at which this product is dealing with itch and inflammation and has a long-term effect, 80-plus percent of patients on [interferon] never go to another product, which in atopic derm was not known. I mean, most of the patients had to rotate through different type of products. It's not the case. So it has a deep effect on the life of patients with eczema and on the whole sequence of treatment that has been seen for a number of years. It's unique in terms of safety because it's topical. So it has a very, very low level of absorption. So people -- physicians are using it now in more and more patients. The new data we will have in the pediatric indication is going to help. It's going to get to increase very meaningfully the size of the patient population that can be treated with Opzelura. So we are not in this mode of saying AD doesn't matter, now we'll talk about vitiligo. We are literally looking at it as 2 different dynamics, very different dynamics and 2 different indications. So the growth in AD is one of the key aspects of the future of Opzelura. And then in vitiligo, obviously, it's one of the situations where there is a medical need and it was maybe not fully recognized because there was no treatment. It's very typical. We see it in many different instances where when the product becomes available, in fact, the medical need tends to be emerging and people start speaking about it very much. What we have seen and observed and documented is the life of patients with vitiligo is impacted by vitiligo in a way that is way beyond the cosmetic aspect. It's very deep. It's very profound. It has all kind of impact that, frankly, in some cases, life altering in many ways. And we are bringing to this patient for the first time ever, a product that can restore the pigmentation of the skin to what it was or what it should have been. So it's not a small thing. There are 1.5 million or maybe more suffering from vitiligo in the U.S. And we are at the beginning of the beginning of getting these patients through dermatologists to discuss their new options. And frankly, from the patient standpoint, there is a good -- fair amount of skepticism because they have been told many times -- yes, there is this new thing that will be working and none of that has happened except that today it's true. And you can see if you follow patients on different social media is that there is this like surprise of saying, look, we see the repigmentation happening. And it is happening fairly quickly after you start applying the cream. So that's where we are. It has been very successful. You can see the curve -- adoption curve has been good. We are in the process now of seeing patients come back. And we feel numbers are starting to build up. So it's very important if you think of it from the business standpoint because the number of total tube per patient per year is what's going to be one is the key driver of the success in vitiligo. And I must say, I mean, from the community standpoint, from the physician standpoint, it's doing very, very well, and it has obviously a very large potential.

I know you talked about this before, but you expect obviously the tubes per year in vitiligo to be higher, 80. And also, I guess, are you -- as you kind of think about the ramp in vitiligo, is that kind of tracking ahead of what you would had expected maybe initially? Like is it going faster? Or it's kind of...

No, it's doing very much where we think it would be and it's growing. Both the new patient flow and the refill rate -- the refill rate is very difficult to model before you just did -- in commercial, we had this guidance. We gave everybody saying, in atopic dermatitis, it would be 2 to 3. So what we see today now after more than 18 months is that we are already at 2. I don't know if it's going to go very much beyond that because -- I mean, the effect of the product is such that, in fact, many patients don't need more than 1 or 2 tubes for atopic derm. And in vitiligo, we spoke about 10 over a period of 12 months. So we are not there yet, obviously, because we don't have enough patients with that first prescription of 10 -- 12 months ago. But we are seeing that number evolving in the right direction. So we are still -- we still believe we will get there.

Got it. And then just in terms of like activating the docs to prescribe, I mean, are you seeing more like faster activation of docs to use it in vitiligo versus AD? Or is it fairly the same? I'm just kind of curious like...

I think the patient flow in vitiligo is one of the issues. Many of these patients are not seeing a dermatologist. So they have to make an appointment to see their dermatologist. And if you try to get an appointment to dermatologist as a new patient, you can see it will take a number of months before you get it. So the flow of -- the patients who are already seeing that dermatologists are clearly discussing Opzelura with vitiligo because that's the subject of the day. The flow of new patients is still relatively slow, but we know why, because it is a slow process to get back into the patient pool of dermatologists in the U.S.

Got it. I mean, have you seen or at least heard from some of the derms like they're getting more inbounds from patients? Because I mean, obviously, I see the ads for -- so like I think you're reactivating the patients...

A lot of patients are basically asking by name Opzelura for vitiligo, and...

And then maybe for the pediatric like population, obviously, it is a topical JAK. I mean, are docs going to be and maybe parents going to be sensitive to Opzelura -- commercially in kids? Or how you kind of have that conversation or how the docs prepare to have that conversation?

I think the efficacy data will drive the adoption because that's really -- I mean, we know obviously the safety has to be clean, that's almost an assumption that we make. On the efficacy side, I think you have a number of kids where, in fact, each is driving the evolution of the disease; itching, scratching infection, et cetera. So the ability of Opzelura to deal with the itch in minutes, we are not speaking of hours, it's something that has a lot of value in the pediatric indication. So I think it will be a very useful addition to what people are using today.

Got it. And then maybe just talk beyond atopic derm and vitiligo. I mean, Opzelura in itself seemingly could be a pipeline and a product. So can you kind of talk about the expansion opportunities in Opzelura?

So you can see. I mean, what we are looking at is to go into indications where today, there has been a clear medical need and not a lot of good products available. So we are doing studies in a mild form of HS. And there are a lot of studies in HS done with us with Biologics. There is also a form of HS where we believe having a topical formulation could be useful. So we'll see. So it's ongoing. And then we have studies in lichen sclerosus and lichen planus where it's relatively rare, but there is a very large medical need, in fact. And where we believe having -- I mean, we believe the mechanism will be efficacious. And there is nothing, in fact, that has been really approved for these patients and where it would be very useful. So where we see it over time is new indications coming, which is important also in terms of access, in terms of formulary status and new indication driving the growth in the next years as we get these new indications to approval.

Got it. And then maybe just shifting more to the pipeline. I mean, you guys have a very exciting immunology and inflammation pipeline and particularly in povorcitinib, we've done some work there. But can you just kind of frame out how you think about kind of that shift to I&I, but also, again, you have a lot of deep oncology pipeline and kind of prioritizing both of those areas?

Yes, they are not competing -- I mean, they are competing for resources, but they are not competing in terms of where we would like to move our priorities. So the way we do it is that every product is basically going into a funnel where it will be judged based on science, innovation, how does it fulfill a medical need that is clear. And from there, it will then go into the process of what would the FDA ask us to do to get it approved. And what you see is that povorcitinib is now moving in multiple indication where we think there is a real case to be made for meaningful progress versus standard of care of today. And starting with HS, it's also more expanded vitiligo and then a number of additional indications povorcitinib and we are even going now to CSU and asthma. So povorcitinib by itself has a number of indications. [indiscernible] has a number of indications. And then in oncology, we are working on the LIMBER product we talk about. So CALR, BET, ALK2. We have the oral PD-1, PD-L1 project that is progressing very well. So you can imagine that's very interesting in terms of choosing the right indications where it could be developed. We have a CDK2 that is still early, but it is also moving very well. So both onco, hematology, which is for us one franchise and IAI's portfolios are moving in parallel. And literally, the company now are working with 2 franchises that are both commercial and in development having their own pipeline.

Got it. And maybe just to expand on a couple of these. So maybe starting with the oral PD-1, PD-L1. Can you just give us an update where you guys are on that program? And I guess, are decisions going to be made or are we going to see data...

So decisions are being made. There are 2 parts to it. One is as a single agent to basically establish the efficacy. So we have a time of safety. Now we had the first-generation product. We moved to the second-generation product. We are now well on our way to show that this second-generation product has a safety profile that is better than the first. So it's well established. So now what we are doing is basically a number of study, we call benchmarking study, where we are studying this product to 8-0 in indication where antibodies, KEYTRUDA, Opdivo are well established, so that we can compare the level of efficacy we are seeing with the one that you see with KEYTRUDA. It's not obvious by the way, and it takes a little bit of time. At the same time, in parallel, we are also developing it in combination where we think it would be very useful because it has this ability to stop the biologic effect of the product if you stop taking the pill because it's a very short half-life, which you cannot do with an antibody. And so the switch on/off effects of the PD-1 is specifically useful when you combine it with [indiscernible]. We are doing that study with CALR. So we are doing a study with [indiscernible] and with VGF, where we are also doing a study in combination. And that will be -- that's ongoing. And that, assuming this will be successful, will be a path to registration in combination that will be also available in addition to the single agent programs that we have. So both of them are ongoing, and the studies are doing very well. In fact, there is a very good level of enthusiasm from investigators for this reason of being able to modulate the safety profile by stopping taking the product.

And when will we get the next update there, like...

I think we'll get updates as the studies are evolving. I don't have a specific date, but I think in '24, we'll certainly have new data that will help us move it to the next step.

Got you. And then maybe just touch on povorcitinib. Again, very interesting asset. You've shown some very interesting data in HS. I guess, how do you guys think about that opportunity? Like we've already had a couple of companies yesterday also looking there, busy space. I think it's a hot area. So I guess, how do you guys think about it and then how you think provo will fit?

Well, I think the HS story is interesting because when we started the program in HS, in fact, everybody had difficulties pronouncing hidradenitis suppurativa. And it seems to be the place where a lot of new mechanisms are being tested. The way we look at it is -- so we are ahead. We have 2 Phase III studies ongoing. So that's very much active. In fact, they are accruing very well. We have an oral product. So many of the biologics, obviously, are injectable, frankly, the level of efficacy when you compare our study to study, it's a little bit difficult to be to be clear, but we anticipate that the level of efficacy we are seeing with provo will be very competitive. And we have seen it in Phase II. There was not only a good level of efficacy based on the so-called HiSCR 50, but there is also more patients with HiSCR 100, which is not very commonly seen, et cetera. So we are very confident on both the safety efficacy profile we are seeing. We are more or less ahead of not far from anybody else in terms of developing an oral product, and we think it will be competitive.

Got you. Maybe in the last couple of minutes here, just kind of more high-level strategic questions. And obviously, you kind of talked about Jakafi and obviously, your life cycle management there and then kind of the patents run off in the late 2020s. I guess, filling that gap. So I mean, obviously, the pipeline is starting to come through, like you said, even with like povo and Opzelura, there is going to be these opportunities. Like is there a gap? Do you need to bridge that with like potential M&A or doing some business development? Or do you feel pretty good about the pipeline delivering and kind of mitigating some of the potential revenue loss with Jakafi after patent expiration?

Both, in fact. So it's not exquisite. So there is a good pipeline, and we can speak about BD and what we are looking at?

Yes, absolutely. And it's exactly what Herve said, both. We have a very nice pipeline that we feel very comfortable around its ability to fill in the gap, but having more shots on goal is always good. So we are looking at the external assets to bring in to add to the internal pipeline. We have a very nice balance sheet in terms of the cash position, no debt right now. So it gives us firepower to be able to do BD. We are interested in areas where we are currently in and have expertise, have capabilities that we can leverage and also adjacent areas where that expertise can also be leveraged. So the obvious areas are oncology and dermatology, where we are currently, hematology, and beyond malignant hematology more broadly. And then we can also look at more broadly the autoimmune inflam space. And in terms of stage, we are interested in assets that could add to the growth in the second half of the decade.

Got you. I mean, is there, again, a certain derisking that you want to see from like any sort of assets that you buy? Do you want to see it past Phase II, like again, proof of concept? Or would you go for an early more novel target? Like what's kind of the risk profile or at least the profile of...

So it depends on the program. But for assets that would contribute to revenue within this decade would mean that there are assets that at this point at, are at least the proof-of-concept stage.

Got you. And I guess what's your capacity in terms of like deal size? Like how big would you want to go? Or will you look at things that are also commercial right now as well? Or is it only going to be development stage?

So the interest is more on the development stage. But if there is a commercial asset that adds to the growth, we would absolutely look at these. Primary focus is on bolt-on type of acquisitions. We have over $3 billion of cash on the balance sheet. We don't have any debt. So we have the ability to add to the current cash balance. So we have quite some firepower to go.

Got you. And then just...

It's not like make a wish. The problem is like a reality, what is feasible and what does exist, I mean. So obviously, the best case is something that would be successful multibillion in 2028. But the truth is that there are a number of things that may be a mix of what we wish and what we can do, I mean.

Is this -- how much of a priority is this, like a near term, like within the next 12 months, we're going to see you active in this area? Or...

I think it's a very high priority. We have been actively involved in multiple situations where it ended up not finishing in our favor. Part of it is because we have been very careful on the value of what we buy or the price. And sometimes, we did not see the fit. I mean, you can go back and look at transactions that have happened. So we have been careful not to overpay based on our own modeling and sometimes we can be wrong. I mean, so we recognize that, but it's something we'll continue to do, being careful that we just make sure it fits the financial criteria that we have for an acquisition.

And the fact that we have our internal growth engine puts us in a position to be more disciplined when we look at assets.

And have you shifted more to -- again, it seems like M&A, BD versus doing like collaborations? Or are you kind of equally looking at those as well in terms of where you guys want to place some bets in terms of pipeline?

We are agnostic in terms of the structure. Whatever makes sense in that particular situation.

Got you. And then I skipped it, but axatilimab, GVHD, I mean, you had that data, I kind of skipped it, but maybe just review again your excitement around that area and I guess, kind of that emerging GVHD franchise?

Yes, it's big. I mean, it's obviously something we are very proud of because, frankly, nobody did any work in GVHD for a long time, and we started with drugs and sort of completely transformed this entire field, chronic, acute in the salvage mode and obviously moving to the earlier stage. And axa is part of it. The beauty of axa is the target. I mean, macrophage is really what's involved in GVHD. So we are sort of completely differentiated in terms of mechanism. And what we have seen a few weeks ago with the agave study is that, in fact, we have a product that is very efficacious and very well [indiscernible], and that's what we are discussing with the FDA now. And as we do that, we'll see what the path to registration could be based on the agave data, and we think it is there for the U.S. And then we obviously have the next question of how do we move it earlier into treatment paradigm? And is it in combination with steroid or in combination with ruxolitinib because that's 2 main components of the treatment of GVHD. So yes, that's a very -- I mean, I know it was a little bit under the radar. They are not top of mind for many people, but it's a new drug. I mean, we'll have a new product very soon that has very unique mechanism and its changing outcome for patients with GVHD.

Like how do you think about that opportunity relative to like what RUX does in GVHD like in terms of overall sales, like...

So in terms of sales, it's always difficult to calibrate even the potential of RUX in GVHD because in the chronic setting, as you know, it's a sort of a semi chronic treatment where patients can be on product for a period of time, then they will go off because of the quality of the response that they get. And then they will probably have a relapse or something and then go on again. So what we observed over a period of years is on and off time. So it's not fully chronic, but it is one of the growing franchise we have with ruxolitinib. Axa will be adding to that, obviously, in the short term and hopefully, will become one of the component of the early lines of therapy in GVHD, and that's a big number.

Great. Well, I think we'll end it there. Herve and Christiana, thank you so much for joining us through the discussion and yes, thanks.

Thank you.

Thank you.