Incyte Corporation (INCY) Earnings Call Transcript & Summary

Okay. Let's go ahead and get started. It's 11:20. Welcome, everyone. This is the fireside chat with Incyte. My name is Vikram Purohit. I'm one of the biotech analysts with the Morgan Stanley Research team. Very happy to have with me the management team from Incyte here. Before we get started though, I need to read a brief disclosure statement. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. With that, happy to have with me, Christiana Stamoulis, CFO; and Steven Stein, CMO from Incyte. Christiana, Steven, thank you for joining us, really appreciate it.

Thank you for having us.

We have a lot to cover today. I thought we could take it in, really, 3 different chunks. First, we could talk about dermatology, then we could talk about the Jakafi franchise and then kind of a bucket of additional pipeline questions. But before we get into any of that, would just love to get some opening remarks from both of you on kind of what you think some of the key inflection points have been for the business throughout the year.

All right. So I'll go ahead and start. And let's actually look at Q2, because as we disclosed last quarter, we have made progress on a number of fronts, which are important and highlight some of the efforts that we have been making and the activities that we have been doing. So first of all, on the commercial end, we disclosed that for the quarter, we had revenues from products of $827 million, which represented a 25% increase year-over-year. And that increase was driven by increase across the whole commercial portfolio. So we saw growth in each one of the products, but more importantly, Jakafi, which continued to grow at 14% year-over-year, and Opzelura, which grew at over 380% compared to the prior year. But when you look at it even quarter-over-quarter, it grew at 40% -- over 40% rate. So significant growth in the portfolio, which shows all the efforts that we have been making on commercializing our assets, and for Opzelura, the potential that we see in this program. Then if you turn on to the clinical side, first of all, we share top line data on 2 of our programs. One is rux cream in pediatric atopic dermatitis, where we disclosed that the study met its primary endpoint. And the second was axatilimab for chronic GVHD, where again, we disclosed that the study met its primary endpoint across all 3 of the treatment cohorts. And then when you look at the rest of the pipeline, again, there, we have been making quite a lot of progress moving forward with different programs and studies. First of all, on the LIMBER front, for both ALK2 and BET, we shared additional data during ASCO, and we are expecting to have additional data towards the end of the year. And then for mutant-CALR, which is our new program for MF and ET, we initiated the clinical study -- the Phase I study. So that's another very exciting program that is now in the clinic. Moving to other oncology programs, oral PD-L1. We are now in both combination and monotherapy studies, number of studies that have been initiated. So we are very excited about this program, and we expect to be able to share more data from those next year. And then looking at the dermatology side, Opzelura, we have now fully enrolled 3 other studies, HS, lichen planus and lichen sclerosus. And povorcitinib, which is the other JAK1 inhibitor that we are developing, we have now initiated 2 new studies for Crohn's and CSU. So you can see a lot going on, both on the commercial end as well as on the clinical development front.

Great. Great. Steven, anything to add from your side or?

No, I think that's okay for the moment.

Great. Okay. All right. So let's unpack all of that, starting with dermatology, starting with Opzelura. A lot of focus on the Opzelura launch, since the launch in AD, but quite a few people are really interested in unpacking the vitiligo launch. So let's just start there first. First question, how is it tracking versus your internal expectations? And you had mentioned at the outset of the launch that one big consideration here is activating the lichen patient population that historically hasn't sought treatment because there hasn't been much to seek and how it's important for Opzelura to start reaching those patients. Are you starting to see signs that that's happening now?

So first of all, I think the launch is going very well and it's very much in line with our expectations in terms of where we are right now, still early days. And still, we are collecting data to get a better understanding of the profile of patients coming in and how they're utilizing the cream and what would be the average number of tubes used by patients with -- in a year, et cetera. But I would say the initial set of patients that we are seeing on therapy, as you expected, are the ones that were already in the dermatologist's office seeking treatment. And so they are the first ones that can get on therapy. And the awareness of the product has increased significantly, 9 out of 10 physicians are familiar with Opzelura, dermatologists are familiar with Opzelura. And all the patients going into dermatologists, 1 out of 5 ask for Opzelura and 85% of them qualified to be put on therapy. So that's already very encouraging to see. In terms of the opportunity that we see, as you mentioned, right now, prior to the approval of Opzelura for vitiligo, there were no other therapies that were approved for repigmentation and still Opzelura is the only therapy approved for repigmentation. And so patients were on treatment for using different things that never worked. So a number of them either decided not to go on treatment or went -- tried different things, got discouraged and stopped. So of the 1.5 million to 2 million patients with vitiligo in the U.S., around 10% have been actively seeking treatment, and the rest of the other 90% have been inactive. So there is a significant opportunity there to activate those patients and get them back to the dermatologist's office. And there are a lot of activities that we are doing in order to achieve that. There is a lot on physician and patient education, working with advocacy groups to help us pull in those patients that have not been actively seeking treatment, a lot on raising patient awareness through social media, DTC campaigns, et cetera. And then also a lot to support patients, both around the co-pay and other patient assistance programs. So we expect that all these would help bring patients back to the dermatologist's office, and in order to be able to get on therapy.

Got it. Got it. And one broader topic of focus for the product has also been the potential for revenue guidance. And you've mentioned that one gating item for you all before you can seriously consider that is seeing how the launch goes in vitiligo. So my question for you there is, what specifically would you like to see in vitiligo, what inflection point has to be turned before you can start providing some sort of yearly revenue guidance or guidance range or even like a peak sales estimate for vitiligo?

Yes. So 2 things. One is, again, around the inactive patient population. We want to get a better sense of how quickly those patients get activated, what percent of those patients would choose to seek treatment and how quickly they can get on treatment because there are also some -- it takes time to get to the dermatologist's office and be able to get prescription for Opzelura. So that's one. The second is the average number of tubes per patient. We are looking at how in real life, vitiligo patients will be using the cream and therefore, on average, how many tubes a vitiligo patient will be using per year. Right now, based on the clinical experience and adjusted for real-life compliance, we estimate that patients will be using at around 10 tubes a year, but we need to have a real life data. And we are now getting to a point where the first patients that were prescribed Opzelura will start being on therapy for a year. So we'll start collecting the data to see how this looks.

Got it. Okay. I'm breaking away from vitiligo then, atopic dermatitis, the launch has been underway for several quarters now. You could, in the near to midterm future, you could have 2 branded competitors in AD for Opzelura, from [ Archimedes ] and also from Roivant. How do you think about positioning Opzelura versus 2 branded competitors? And I think the broader question there is, do you think all 3 therapies end up competing for the same pool of patients where Opzelura has currently been circulating? Or do you think all 3 act together to kind of grow the branded market?

So -- and please, [indiscernible]. But when we look at Opzelura and the efficacy profile, I think what differentiates it from all other programs is the impact that it has on each and how quickly it can help with each. We -- earlier this year, we presented data at RAD from a study, SCRATCH-AD, which was looking at how quickly Opzelura helps with each when it is applied. And we shared data that there is a benefit as quickly as -- as early as 15 minutes after application, with maximum benefit after 4 hours and that benefit remaining, being sustainable for 12 hours after application. So this is the type of benefit that is very unique to Opzelura data that we have seen so far. So I think that is going to continue to differentiate it versus other therapies.

Yes. Maybe just to add a little bit, I know it's dangerous to talk about another company's drugs when there's no head-to-head. But one way of doing that is looking at placebo-adjusted rates on the endpoint. So other than if you look at Investigator Global Assessment, or IGA scores, our placebo-adjusted rate, if you look versus, roflumilast, for example, is much, much higher. So that's encouraging for us. And then on tapinarof, there are other issues potentially on areas that it's hard to apply to because of sensitivity, et cetera. So I think, overall, we're very comfortable in the profile of Opzelura, this outstanding itch response, the placebo-adjusted efficacy rates, the ability to apply it all over the body. And then as Christiana said, upfront, a very big patient pool as well.

Got it. Got it. Great. Maybe that's a good point to pivot to another aspect of the dermatology pipeline, povorcitinib, oral JAK inhibitor. So you have late-stage studies underway for hidradenitis suppurativa. There's been some recent data flow in that space, also some regulatory developments. Have any of the progress with biologics in the space impacted your view on the commercial opportunity for povorcitinib?

No. Yes, I don't think so. I think if you go back to the proof-of-concept study that enabled the 2 Phase IIIs you're talking about, which are enrolling very, very well in moderate-to-severe patients. First, if you go back to what we presented in February, to our knowledge, it's the first time ever that a HiSCR100 has been reported, which is complete resolution of abscess, nodules and fistulas, that was in 22% to 29% of patients depending on the dose. So that gets replicated in Phase III. Certainly against the competitive space that have reported data thus far, that's a potentially huge efficacy differentiator. As you pointed out, it's a very active space right now because of the large unmet need. So despite 2 approved products, there's still a lot of room to improve and improve in the lives of patients with this condition, which can be very miserable. We think, in the United States, it could be roughly 1% of the population could be underdiagnosed a lot. With more effective therapies, there could be more unmasking. Of that 300,000 patients, about 50,000 currently seek treatment on our estimates. About -- broadly divided in moderate to severe, it's around 150,000, maybe a little bit more in the mild to moderate. There's certainly a lot of opportunity there. For mild to moderate, we're actually testing Opzelura in that space. And then in the moderate to severe, it's about the JAK1 and getting a differentiated profile. Just because you bring up povorcitinib, vitiligo as well as is a go for us. We've declared that we're going to Phase III there by the end of this year, with the goal to treat a different population than the Opzelura population, so the more severe patients in terms of body surface area involvement. And then just to round it out, we've started 2 proof-of-concept studies in asthma and chronic spontaneous urticaria as well.

Got it. Okay. Let's touch on povorcitinib for vitiligo then. Just talk us through, to the extent you can, what those Phase III studies could look like, based on what you know right now?

Yes. I think, again, as Christiana was saying upfront, there are many, many patients with lichen in the United States currently who seek no therapy whatsoever. In that group are people who are very comfortable with their condition and don't view it as a disease, but there are others who would potentially benefit from more effective therapy and want to treat it. The way the population gets divided up is practical. The Opzelura program was with -- for patients with vitiligo with 10% or below body surface area, just practically the ability to put on enough cream daily. For an oral JAK, of course, it's very different. You don't have to apply a cream and we're looking at a lower -- a higher body surface area and above to treat those patients with a different therapeutic ratio. And you'll see when it gets posted on clinicaltrials.gov what that population is, but it's a higher population in terms of body surface area involvement. The other biggest decision to make was the dose because, again, you guys know as well as we do, the JAK inhibitor cloud, if you will, and to get the therapeutic ratio right in terms of efficacy, but not hit worrying toxicity. So we've spent a lot of time with the Food and Drug Administration, getting to an agreeable dose to move forward in Phase III. And it again will be announced on clinicaltrials.gov at the right time. And then the competitive nature of the space, there are others that are going to be going after this, again, which is just good for patients. It's interesting. It comes back to graft-versus-host disease. You open up a therapeutic area, gets competitive quickly. You mentioned HS, and now vitiligo evolved in the same way, hopefully all really good for patients.

Sure. And I'm not sure how much research you might have done on this specific topic, but I'd be curious to get your perspective on the receptivity from the vitiligo patient population towards an oral JAK. Do you think that the current -- roughly 10% of patients that are actively seeking treatment, kind of, that is where the oral JAK would first find a home? Or do you think that, that is something, depending on how the data plays out, that could more aggressively activate the lichen patient population that you've been talking about for a couple of months here?

Yes. I mean just to be a little repetitive. It's clear you have to be a little bit careful in the semantics because there's a population that, again, doesn't view this as a disease at all, and they talk about patients living with vitiligo or people living with vitiligo. And that's completely fine. And then there's a segment of people with vitiligo who have, obviously, the condition itself, but the psychosomatic aspects thereof, either anxiety, depression or other psychosomatic aspects because of where parts of the body the disease evolves that can affect their lives. And probably that's the population that will seek therapy first from a therapeutic ratio point of view, be willing to take on some of the risk of an oral JAK in return for the benefit. Obviously, the studies have to read out to prove that.

Sure. Okay. I'll ask you one more question on derm and then we should pivot over to LIMBER and the Jakafi franchise. As people think about Incyte potentially further building out the derm platform, do you think it's going to solely be focused on more indications for rux cream and povorcitinib? Or is there the opportunity to step outside the JAK inhibitor space and look at other mechanisms and look through more indications through non-JAK routes?

Yes. I mean I think we're not here just to be either rux cream alone or povor alone or both. I mean, clearly, this is a space now we're getting to know very well, thankfully being very successful in to-date, and we want to keep going. Just to mention for Opzelura, as Christiana said upfront, we've completed Phase IIs in lichen sclerosus, lichen planus and mild HS. For povorcitinib, we've completed Phase II in prurigo nodularis as well. So just in terms of conditions, you get a sense there. And then we have in license an IL-15 receptor beta compound, that at least preclinically, it looks like "may cure vitiligo" by getting rid of resident memory T cells. So it gives you a sense of the dedication thus far, and we're certainly open to keep going, either mechanistically, compound-wise, or other conditions as well across dermatology. And obviously, we've built out a commercial group to sell the marketed products in that space.

Okay. Great. Let's pivot to LIMBER and Jakafi. So there's been a good amount of investor focus on the ALK2 and BET data sets expected by the end of the year. Just to level set for us, kind of walk us through what we can expect to learn and what you're looking -- what you're hoping that the data sets kind of help derisk for you?

Yes. The MF space and PV space and ET as well are very interesting. So just because I don't want to forget it, but firstly, we've taken an extremely novel compound into the clinic this year, mutant-CALR antibody for 1/3 of MF and 1/3 of ET. It's a mutually exclusive biomarker, so it doesn't overlap with the others. And it was a plenary session of ASH because it's potentially completely disease-modifying, even potential a cure if it works and is safe. So that's in the clinic now and gives you a sense of our sort of dedication to the innovation side here. In terms of the LIMBER program in general, RUX XR is still an effort for us. Obviously, we got a CRL from the FDA around a concern that surprised us a little bit upfront because it was around the [ semen ] and potential lack of efficacy there. So that effort is underway to address those concerns from the FDA, and there's one that's pretty short in terms of modeling, one that's a little longer. Both will complete in time for the LOE and we want to get RUX XR across the finish line. BET and ALK2, different programs. So BET, obviously, the thing to watch there competitively is the consolation morphosis report out by the end of the year in first line. Our BET program continues to advance. The drug, as we've shown at ASCO this year is active in terms of spleen response, symptom response and some hemoglobin improvement as well. And the 3 areas that are in play are first-line, a suboptimal rux cream and then a monotherapy setting as well with BET post-JAK inhibitor. And as soon as we're ready to go and see what happens competitively, we'll tell you where we go in there, clearly an active compound in MF. ALK2, we're a little surprised that the dose predictions were off a little bit, and we can keep going higher. So we continue to dose escalate now. We're up at 600-milligram as monotherapy, 400-milligram in combination with rux. We've seen hemoglobin responses in both those settings. And the question is to get to a dose by the end of the year, that's go forward and then declare registration path there. It could be a first-line type study in terms of hemoglobin improvement anemia prevention. And then you get the rux dose intensity effect there as well. So a critically important program to declare. As you allude, we'll have those data sets by the end of this year and then the clear path forward there. And then just to round out, we continue to work on fixed dose combinations for BET and ALK with rux. But it's likely that the pivotal studies with those 2 will be initially with the immediate release, and then we'll pivot on the back end with bridging work on bioequivalence.

Got it. Got it. Okay. And just to clarify, so when you have the data sets for the ALK2 and BET combination by the end of the year, do you think the next steps are going to be concurrently announced? Or could that be a little bit of a lead time until maybe early next year?

Yes, maybe a little bit of early next year. You never know where you're going with dose escalation with ALK2, just so it's safe. So we don't want to leave anything on the table. And then there'll probably be a bit of a regulatory negotiation on the endpoint there and what it is and does it require PRO. And then BET, it's a competitive space and see how that study reports us and what we do in that regard. But it's around the same time, and if that's your question.

Okay. All right. And remind us how -- assuming these efforts are successful, either or both of these combinations, by how long could you extend patent life on the Jakafi franchise from late 2020s to when, roughly?

Yes, the FDC would be a new entity. So you get the patent loss of that and obviously then potentially RA top things to think about as well, but it's substantial.

Okay. Maybe we can pivot to talk about a competitive effort, a potentially competitive effort to Jakafi that we've gotten some investor questions on momelotinib from GSK. So there's a PDUFA date there coming up. And assuming that GSK is approved with a second-line label in MF, I think 1 concern from some investors has been the risk of off-label use in the first-line setting for patients with low hemoglobin levels. So first, I guess, do you think that's a realistic risk? And then secondly, what percent of myelofibrosis patients do you think eventually titrate to the lowest dose of Jakafi due to anemia thrombocytopenia, because I think people are seeing that as a potential risk of Jakafi erosion prior to the LOE from a competitive point of view.

I mean Christiana will add to what I'm about to say. I think, just to do your second question first, if you look at how real-world use of ruxolitinib, it's quite variable. There's a group of patients and physicians who start at lower doses and titrate up because of tox concerns. It's not that we advise that. It's just that's what happens in the real world. And then there's a group that do it the other way around, which is start off at the labeling dose if they run into anemia, for example, will titrate down. So it's much more variable than you would think. If you look at the data that enable the rux approvals, the comfort data set, actually, there was no restriction on hemoglobin coming in. And in fact, people had hemoglobins as low as 6, 6.6 grams per deciliter. Come into a study and we're able to, in many of those cases tolerate rux, titrate up and get the benefits. So there's no real tight correlation there. And we think it's a little overplayed at least externally. But there is clearly a proportion of rux patients who receive an adequate dosing or come off because of anemia. And that will likely be -- should it be approved, I think at the end of this week, the PDUFA date, the right population given the data set, right? In terms of momentum study of momelotinib versus danazol. In terms of momelotinib itself, the initial attempts at registration, SIMPLIFY-1 and SIMPLIFY-2. In terms of SIMPLIFY-1, was inferior to ruxolitinib in terms of the JAK endpoint, SVR35 endpoint. So we think based on that data set, we have a much better JAK inhibitor and obviously, rux has proven that over the last decade plus. In terms of SIMPLIFY-2, it actually shows you what happens with these patients because if you have someone on a JAK inhibitor and you remove the JAK inhibitor and then weeks or months later, you started again, you get a response regardless. If you don't do that and maintain JAK inhibition that was done in SIMPLIFY-2, you only get single-digit SVR35 responses, 5%, 6%, 7%. So I think a bit of what you've seen in momentum was that withdrawal of JAK and the reintroduction of JAK and seeing that response. So overall, good for patients per label, if it's post-JAK for that set in, in terms of off-label use, it's just hard for me to comment on them. I don't know, Christiana, if you want to...

The only thing to add is that there is no other JAK that has shown the -- has the long-term survival data of Jakafi. And when you look at other programs that have been commercialized, we haven't seen any impacts from ruxolitinib or fedratinib, and so we continue to feel the same way for this.

Got it. Okay. Very helpful. We have around 2 minutes left. Maybe I can ask you a question on business development. That's been a topic of focus as well in recent years. Talk us through, Christiana, your latest thinking on which types of assets or platforms would be additive to bring in to Incyte's current capabilities, both from a size perspective and also from, like, a therapeutic area perspective.

So our focus has not really changed, maybe expand it a little bit. So the natural areas for us to look at are areas where we have clinical development expertise and commercial capabilities and expertise that we can leverage. So that means oncology, hematology -- and hematology, it could be beyond malignant hematology, more broadly, and dermatology. And then we are looking at adjacencies that may make sense for us. So for example, inflammatory immune more broadly, areas where there are specialty areas where we can leverage the expertise that we have on the discovery and clinical development front to develop programs in these areas. And then if we have a specialty, we can pursue with same focus, commercial efforts as we are doing for oncology and dermatology. So we are looking to expand a bit further to broaden the universe of opportunities, but always be able to justify why it makes sense for us to bring in and develop and commercialize any particular asset. In terms of stage of development, I would say around PoC and later, assets that could add to the revenue growth towards the end of this decade. And in terms of size, it's hard to say because it also depends on the structure of the deal. If it's a licensing deal, the size in terms of the upfront may look very different than if it is an outright acquisition. The primary focus is to bring in assets that would fit well with our portfolio. And we have over $3 billion of cash on our balance sheet. We don't have any debt right now. So we have firepower to be able to do BD.

Got it. Great. I think that's a good spot to end it up on. Christiana, Steven, thank you so much for your time.

We really appreciate it.

Excellent. Thank you.