Incyte Corporation (INCY) Earnings Call Transcript & Summary

All right. Great. So welcome to the fireside chat with Incyte this afternoon. My name is Michael Schmidt. I'm a biotech analyst with Guggenheim. It's my great pleasure to welcome Herve Hoppenot, CEO; as well as Jim Lee, who heads the [ IAI ] portfolio at Incyte. Welcome, and thanks for joining us.

Well, thanks for inviting us.

Thank you. Nice to be here.

So maybe just starting out with a broader question. We'd like to focus on the IAI portfolio today, perhaps more so than oncology. But with Opzelura, you've sort of set the stage to the commercial product launching at the moment to expand your exposure in the IAI space. Can you perhaps just talk about high level about your strategy in IAI right now and what role it will play within Incyte going forward?

Yes. Thank you. The strategy for IAI came, I mean, now it's dermatology as we speak, but it really came from the research team having a number of products that were active in inflammation and where we were looking at obviously cancer as a first indication, but where we were thinking it could have application outside of cancer. And when you go back to baricitinib, when you go back to some of the JAK inhibitors that we have, cancer was not a target indication at the beginning of the development, it became later. So it was sort of reversing that and saying with discovery teams that we have, that could be new applications we could find outside of cancer. And the first that came were relatively of use with ruxolitinib in alopecia areata. In fact, it was the first experiment that we did. And then obviously, in atopic dermatitis and vitiligo. So alopecia areata which Rux Cream did not work interestingly, so baricitinib became the lead on that indication. And then obviously, atopic derm and vitiligo, we are very successful and approved by FDA. And we decided then to create a commercial team to commercialize in dermatology. And that was not an easy step. I mean, for a long time, we were assuming we would find a partner that will be commercializing these products for us in some way. But we decided that it was in fact feasible in terms of size and certainly strategically very important. So that's the story of the past 2 years. It's the commercialization of Rux Cream Opzelura in atopic derm and now in vitiligo, it has been very successful. It has been a very quick uptake in fact, when you compare it with all the constraints that exist in terms of access in this field, it ended up being relatively fast. And more importantly, the product Opzelura is excellent for both indications. So it is driving what we see now as long-term important franchise for Incyte. And that's the way we strategically think about it. We have this hematology-oncology franchise, which obviously has been very successful, where we have a number of new projects that are also very important. And we see the derm IAI franchise as a sister business unit in some way. Most people are dedicated. So there are very few people who do both, in fact, except some of the corporate functions. And that will grow now with all the new indications and the expansion of Opzelura, povorcitinib, where now we have 3 indications with positive proof of concept and Jim could speak about it when it was just last week in prurigo nodularis, but where we can see how this will build over time very large potential for the product. And we have other products that we are developing at early stage also for dermatology or IAI application. So there is an entire portfolio. There is a commercial team, and there is already a revenue line for this business unit.

Great. Well, I'd like to spend a few minutes to talk about Opzelura and the commercial launch, perhaps just starting out, Herve, how has the launch tracked at this point relative to original internal expectations? And now that we have a little bit more visibility on the uptake of the product in the market, how should investors think about the U.S. peak sales potential across both approved indications?

So I mean the launch has been, in fact, the adoption in terms of being able to be on formularies for each of the 3. PBM was very fast when you compare to other products that are being launched at around the same time horizon, it was very quick. The launch in atopic dermatitis ended up giving a perception to both physicians and the patients that the level of efficacy you have with Opzelura is completely different from what you have with other topical products that can be used. So that's where it has been very successful. And the launch in vitiligo obviously, is a unique product. It's not the product with repigmentation as an endpoint. It has been also very noisy when you speak to the communities, the vitiligo community. Everybody is aware of Opzelura, and we see the uptake doing very well. So the last quarter, sales were $90 million more or less. So it has been growing steadily from the beginning and access has been at some point what was sort of slowing down the uptake. Now it has been mostly solved like 80% of patients Opzelura is covered in their plan. And we think that both atopic dermatitis and vitiligo will go in very different ways where for atopic dermatitis, it's mostly the flow of new patients that is driving the growth of the product. And for vitiligo, you have obviously the flow of new patients, but you have the refill over a period of 12 months that is going to close that curve. So it's 2 different curves in many ways, but both of them are contributing to the growth of the product overall. And the way we see it for the long term, we have new indications coming. Obviously, there is pediatric atopic dermatitis where we have shown the data already publicly where we will be able to submit to the FDA next year. So that should lead to an additional flow of patients that could be treated starting probably in 2025. And then we have the other indications we are looking at for Rux Cream that Jim can speak about that would be sort of fueling that growth curve over the next 5 years.

Okay. And there's been a lot of focus on the gross-to-net adjustment, which I think you've said is kind of sort of level and here at sort of 55% this year on average. How should we think about that dynamic as we think about next year? I know you've talked about gaining preferred formulary access with Caremark and Aetna. How will that impact gross to net and perhaps also volume uptake of the product?

No, that's important to think about it in terms of net sales. I mean the goal of what we are trying to maximize are the net sales. So the volume is driving the net sales and the gross to net can be evolving one way or the other. Sometimes it can be a good thing, for example, to have an additional volume as we have with Aetna. We anticipate that volume will be growing. The discount to the PBM will be going up. So the gross to net will be impacting negatively in that case by that. But the co-pays will be lower, so that will help in terms of gross to net. And frankly, the net-net of the 2 is very difficult to calibrate. So if we say this year, we are around 55%, you have to anticipate that Q1 will be very much higher in terms of gross to net because there is always a number of patients where deductibles are higher during the Q1. And then it will go back somewhere around that number. I don't know exactly which way it will be evolving. But at the end of the day, every decision we are making in terms of going into a contract or not is driven by the impact it will have on net sales when more than the visible impact it could have on gross to net itself as an average.

Right. And then you already talked about just now dynamics around AD, where you see sales driven by new patient starts with vitiligo where you see where you would expect more reusing or recurring orders, so to speak. And I think you mentioned the prescription share is 60-40 at the moment, AD to vitiligo. Just talk a bit more about perhaps what you've experienced in the vitiligo market at this point, how that has tracked relative to your expectations? And long term, how we should think about the prescription share between the 2 indications?

So the long-term prescription share, I don't know, frankly, the way we think about it is that the number of patients with vitiligo, back to your first question on the flow of vitiligo, the number of patients with vitiligo is very large. I mean there could be up to 1.5 million patients that could benefit from Opzelura. We have a clear strategy of leadership in vitiligo. We have other products we are developing for vitiligo. And Opzelura, the cream form is obviously the best fit for patients who have a relatively small extent of their vitiligo. And that will be a good proportion of the 1.5 million total patients that could be treated here. So it's a large number of patients. One of the issue is that many of them are not actively treated by a dermatologist. So they have to go back to their dermatologist, they have to make an appointment, which unfortunately, in fact, in many countries, vis-a-vis but can take up to 6 months. So there is a sort of a bottleneck of getting appointment to see your dermatologist. And then if they decide to get treated, obviously, there will be a 12-month type of treatment. And obviously, some of them will go through the whole treatment and some of them may stop before. So there is a persistence issues that we are anticipating and we are trying to manage as much as we can. So it's one of the big aspect of it. The other limitation is obviously going back to their dermatologists. What we have seen up to now and that's how we have reached the level of usage that we have seen is that patients are very motivated, some patients, the one going back to their dermatologists are very motivated and they are seeing repigmentation maybe faster than what we were anticipating based on the clinical trials because the way clinical trials are calculating the repigmentation is a little delayed versus actual visible effect. So that's very good because a lot of the motivation for patients is coming from seeing progress and being able to see that the repigmentation is taking place.

Okay. And then how important is the pediatric AD indication, the ones on the label? What impact would you think that might have on Opzelura uptake?

I think it will add another pool of patients who need good treatment where using a topical is a logical thing and where Opzelura is the most powerful topical that you can give with an excellent rate. I mean, if you have seen the data, and Jim can speak about them. I mean, if you have seen the data that we have published recently, I mean, that level of efficacy is unmatched. So I mean, there are around 2 million pediatric patients that could benefit from Opzelura.

Yes, actually, 2 million children, just to be specific. So we do have approval in pediatrics, specifically adolescents. And the study that we recently presented were in the younger children 2 to 11 year olds. And it's a very common disease in children up to 20%, and we believe in the U.S., 2 million children are impacted by AD.

How does that compare to the adult opportunity?

So the percent is higher in pediatrics. But since there are a lot more adults, there's still more adult patients with atopic dermatitis. [indiscernible].

So the Black Box warning hasn't been a huge deterrent to using Opzelura it seems at least in the adults? Do you expect that to be the case as well in the children? Or do you think the scrutiny will be higher?

So based on the safety data, I think we've shared this before, but the Black Box was not based on the data that was observed in the clinical trials, it was a class warning. But obviously, you always want to be sure that you see the same type of safety in adolescents and adults when you evaluate it in children. And so what we did present was that the safety is actually very, very good in the youngest population. In addition to the Phase 3 study that we presented recently, we will present what's called a maximal use study in 40 children, ages 2 to 11. So we'll present that data as well where there are children with at least 25% of their body surface area impacted by AD are treated with ruxolitinib cream or Opzelura. And so we'll present that data. And I think the bottom line is between that data and the Phase 3 data, we see a very good safety profile of Opzelura in the younger children.

Okay. And then in vitiligo, could you talk a bit about the evolving competitive landscape? Opzelura is obviously one of the first approved therapies there, but there's a few others coming down the pipeline, PDE inhibitors, BET inhibitors, other JAK inhibitors. How do you view Opzelura positioned long term in vitiligo treatment paradigm?

Yes. So Opzelura is the first-in-class for vitiligo. And I think we're seeing very good responses. In addition to the Phase 3 data, we've shared 2-year efficacy and safety data. We shared that at the American Academy of Dermatology meeting last spring. And recently, we shared a subgroup of patients who had a slower response. So at week 24, which is the placebo-controlled period, and we followed them with continued treatment. And the majority of them actually did quite well with prolonged treatment. So we have lots of very good data around treatment of vitiligo patients with Opzelura. And I think because of that, clearly, we are the go-to drug. And so I think the bar is quite high for any other topical competitor. Obviously, I think the area where you're going to see most of the drug development are the patients with a little bit more extensive disease. So Opzelura is approved for up to 10% body surface area. There are many patients that have more than 10% involvement who would have or would prefer to take a pill versus applying a cream. So we feel that, that's the patient population that is underserved. And so we're developing our oral JAK1 povorcitinib in that patient population. There are other molecules in development for that patient population. But we believe, based on what we've seen in our Phase 2 study with povorcitinib that it could be the best-in-class oral for vitiligo as well.

Okay. So we'll talk about povorcitinib in a minute. But first, I think Herve and I just talked earlier about other opportunities for Opzelura. Can you just talk about, I know if you remember the alopecia experience, but what other opportunities are there for Opzelura that you're pursuing in the near term?

So we have 2 Phase 3 studies in prurigo nodularis, so more mild to moderate prurigo nodularis patients. And we have 3 ongoing Phase 2 studies in conditions and diseases called lichen sclerosus, lichen planus, and again, a mild to moderate hidradenitis patient population. So we'll have those data readouts over the next year and be sharing that publicly. And depending on the data, obviously, we'll have to make a decision to go into Phase 3 in those diseases.

The sequence is pediatric AD, prurigo nodularis and then the 3 Phase 2s whichever are successful going to Phase 3.

Okay. Great. All right. Well, with that, maybe then let's switch over to povorcitinib, which is your oral JAK1 inhibitor. And I know you've committed to significantly expanding the clinical development scope for that asset. Perhaps just a quick stepping back, how different is povorcitinib from other oral JAK inhibitors? Obviously, several of them are approved now for autoimmune indications?

Yes. So well, I mean, based on what we've seen in the clinical trials, we believe povorcitinib has the potential to be the best-in-class oral JAK1. And the reason for that is the high skin penetration that we're seeing, deposition we're seeing with povorcitinib. And that's reflected in the high efficacy that we've seen in our Phase 2 program for hidradenitis with vitiligo and most recently with prurigo nodularis. And so it's very highly JAK1 specific. It's a once-a-day pill, and we have a number of ranges of content dosages that we can test in a variety of diseases. So we have a lot of flexibility to really pick the right dose for the right disease with povorcitinib.

Okay. And then as we think about oral JAK inhibitors and again, the class warnings, the class Black Box. Any lessons learned here? Or any impact of that as you think about the sort of povorcitinib opportunity?

Absolutely. With the class warning with the oral JAKs, you have to be conscious of the overall benefit risk of the disease condition that you're going to pursue. And obviously, that really depends on what other treatment options are out there, what subtype of patients that you're going after in the clinical trials. And so we're clearly aware of the oral JAK1s. But I think what you're seeing from the recent publications, both from the clinical trial setting, but also from the post-approval safety data is that perhaps that some of the safety signals that were originally observed, the frequency may not be as high or may not even be as common as what was observed with the pan-JAK inhibitor tofacitinib. And so time will tell. But I think we're going into it, obviously, with the acknowledgment that it is an oral JAK, but we're being very selective about the diseases because of that.

Okay. And then, so there's a range of opportunities for povorcitinib that you're pursuing, hidradenitis suppurativa is one indication where you're in advanced stage in Phase 3 at the moment. But there have been several updates. There's other drugs that are pursuing HS, including IL-17 agents and a few others. Can you just talk about perhaps the value proposition relative to the competitive landscape in HS? And also in context of your Phase 2 data, where we've recently seen 1 year data.

Yes. No, that's a great question. And it's really great for HS patients that so many drugs are in development. Obviously, there are 2 classes of drugs, adalimumab, TNF-alpha blocker and Cosentyx that are approved and available. But I think what you'll see from the efficacy is that when you target a single cytokine or single pathway, you have limitations in a disease like HS, which appears to be, for most patients have many pathways, many different immune cell types involved. And so they certainly are helpful. But for many patients, you need to really target multiple pathways. And I think that's where we believe povorcitinib can bring the differentiation, the benefit to HS patients is that you're targeting multiple cytokines that have been implicated in driving the pathogenesis of HS. And I think to your later question, how do we know that or why do we think that? And that's really based on the long term, the 1-year data we saw in our Phase 2 studies, where we saw in a very high complete response at the high scar of 100 or almost 30% of the patients who are on povorcitinib were able to achieve a high scar of 100, which is really not seen or had not been seen before. And so the belief there is, if you target multiple cytokines, multiple pathways, you can achieve a higher response in many patients. And the 2 other things I wanted to point out with povorcitinib with the data that we've seen in the Phase 2, and that is what bothers the patients, the most, what bothers HS patients? That's the pain, and it's the discharge. And we've seen in the Phase 2 studies that the pain is impacted, it goes down right away and stays down. And then most importantly, many of the patients discharge goes away over time. And so it's not just what the physician investigator seeing, it's what the patient is experiencing. And that's why we believe povorcitinib will be a differentiated drug for HS patients.

Okay. And just remind us where you are with your 2 Phase 3 trials and in terms of time lines towards potential NDA filing?

Yes. The enrollment is going well, and we hope to get some top line data end of 2024, early '25, file shortly thereafter and get approval before or hopefully by sometime in 2025.

Yes. Okay. Great. And then you did mention the opportunity to expand upon the Opzelura vitiligo indication with povorcitinib. Can you just remind us again of the Phase 2 data, and how your Phase 3 trial design really expands upon the Opzelura indication?

That's right. As we mentioned, Opzelura is approved for patients with up to 10% body surface area involvement in vitiligo. With povorcitinib, we actually have some overlaps. So where patients with at least 5% body surface involvement are allowed to enroll in the Phase 3 study with povorcitinib. So basically, it's 5% or greater. Obviously, I think you'll see majority patients in the 30% to 40% BSA range. But there is that overlap so that patients and physicians can have an option. So those patients with 7% body surface area. If they would prefer to be on a pill long term, they have that option to treat themselves with povorcitinib.

Okay. And I think the Phase 3 is just about to start. Is that correct?

That's correct. Yes. I think we've announced but we have started the Phase 3 program.

Okay. Great. And then prurigo nodularis is one of the [ newer ] opportunities for povorcitinib. Just can you talk about sort of the magnitude of that opportunity? And again, how we should think about the competitive environment and the opportunity for povorcitinib?

Sure. It's a terrible disease for the patients who suffer from it. They have chronic itch and they just pick at their lesions and develop nodules over time. And many of the patients, especially the patients that we're targeting with povorcitinib have hundreds of lesions on their body. And you can imagine picking away and having itch almost 100 lesions or more. So that's the target patient population. What has been tested, what's approved, dupilumab, these are TH2 cytokine specific therapies, nemolizumab announced Phase 3 data, the second Phase 3 study recently. And so it's great that these patients have access to drugs that can help them. But we believe that povorcitinib, based on what we've seen with the recent Phase 2 study data, again, could be best-in-class for these patients. In terms of rapid itch reduction, we haven't shared the lesion clearance, the investor Global Assessment either clear or almost clear. But once we share that, I think you'll see that the efficacy that was seen in this Phase 2 study is very good. And I think we'll be very competitive and also something that patients and physicians will use for the treatment of PN.

Okay. And what's the size of that opportunity? And is there overlap with other indications, AD, perhaps or things that Opzelura can address also?

That's right. So some patients with PN do have AD. It's estimated about 200,000 patients have PN. And as I mentioned earlier, we're evaluating Opzelura in the more mild to moderate patient population, povorcitinib with the moderate to severe. So we're essentially evaluating or testing our products into full spectrum. Povorcitinib, obviously will be for those patients with extensive lesions all over the body. But I think there's obviously opportunity to be very complementary and offer all patients in the disease spectrum, a treatment that really can be best-in-class for them.

Yes. Okay, great. So it sounds like povorcitinib clearly a very important value driver for the company longer term. Perhaps, Jim, if you want to talk about some of the other molecules that are coming out of your IAI pipeline and what's interesting here that the investors should pay attention to?

Sure. Well, our newest molecule is a monoclonal antibody that targets the IL-15 receptor beta. We're developing it for vitiligo, but there are other diseases where IL-15 has been shown to play a role in the pathogenesis. And specifically, these are CD8-positive T cell mediated diseases, autoimmune diseases. And even to go down to another layer, it's really those diseases where the lesions come back at the same exact spot. And so specifically, what we're targeting our tissue resident memory cells. by blocking the IL-15 effects on those tissue resident memory CD8 positive T cells. So vitiligo is our lead indication, but there are other diseases that we are looking at. We haven't shared that publicly. But it's a very exciting target and a very exciting molecule for us to develop.

And I think the Phase 1 is up and running now. Can you just talk about that a bit and how you think about disclosure of information?

Sure. So with any molecule in the non-oncology space, the Phase 1, obviously, is in healthy volunteers, looking at pharmacokinetic, some PV markers. And then as we dose escalate, we hope to get this molecule into patients sometime next year.

Great. Yes. Can perhaps then rounding out with a question for Herve. As you think about the evolution of Incyte as we've seen it, how important will business development play in your growth strategy going forward? And how do you plan on balancing allocating capital internal versus externally?

I think the internal allocation is, as we have said, is relatively clear. We will continue to invest in innovation. In fact, our internal research team has been very productive. And as we discussed briefly earlier, I mean, the past few months have been very successful with a number of molecules coming out of that group. So it's things like TGF-beta, PD-1 bispecific, which is recently entered the clinic. We had auremolimab who came from an acquisition. So that's the other source of molecule. We have obviously CALR antibody that is now in the clinic. We have the V617F in [ MGM ] also coming from our own research CDK2 et cetera. So that will continue. We believe it's absolutely important to have an internal research, successful research team to be able to evaluate business development. So we believe there is no good business development without having people who are deep in the details of that same field internally. And we are in a position where the company is cash positive very much. We have a positive cash flow. We have accumulated more than $3 billion now in cash. We have no debt. So we are in a position where we can make acquisitions when we see something that is strategically aligned with our goals of growing revenues in the year '27 to '30 and is fitting with the rest of the portfolio. So that's something we are actively looking at and obviously, the question is to find the right value for the price that would fit our current portfolio, and you could potentially see some of that in the next few months.

Great... Awesome. Well, with that, I think our time is up. And like to thank Herve and Jim for joining us today. It's been a pleasure to talk to you.

Thank you very much.

Thank you.