Incyte Corporation (INCY) Earnings Call Transcript & Summary

All right. Welcome, everyone. This is Gavin Clark-Gartner with the Evercore ISI Biotech research team, and I'm really happy to be here with the Incyte team. We have Herve Hoppenot, who is the CEO; and we have Christiana Stamoulis, the Chief Financial Officer. Thanks for joining.

Thank you.

Thank you for inviting us in Miami.

Absolutely. All right. Maybe I'll just kind of turn it over for any opening remarks, if there's anything you want to frame or hit on first?

I mean, I can try to quickly describe a little bit where we are in the evolution of Incyte. I mean, it's always story about growth. So it's a growth of today, which last quarter was driven by Jakafi and Opzelura. So what's interesting to see there is Jakafi continuing to grow, and we can speak about that the multiple indications where it's being used, but also the fact that we are now for a number of quarters in a phase where we are basically diluting Jakafi in a bigger portfolio. So Opzelura growth is driving in large part, the overall growth of the corporation. We spoke about like $90 million for last quarter for Opzelura, which is, if you look at the annual rate, it's already north of $350 million or something. So we are in this space where -- we have now another driver of the growth for the corporation, which I think is very important. And then obviously, the growth of tomorrow, which is in the very short term, going to be driven by Opzelura new indication, and we have that in multiple settings that we can speak about. We have axatilimab that will be, in fact, a plenary session at ASH next week or in a few days. So it's a really important data for GVHD, and it's a partnership we have with Syndax that is also going to be important for the long term because there is a lot of potential in that indication. And all the new data we received for ruxolitinib where now we have 3 indicator and where we randomized Phase II study showing a very good level of efficacy and safety and where we are in Phase III. So that will be basically contributing relatively soon to the revenue line for Incyte. And then there is not tomorrow, but the day after where we have a number of new product, new indication we are working on, where, as you will see at ASH in the field of MPN is very exciting because there are a number of combination studies we are doing with ruxolitinib. So that's one aspect of it with ALK2 and BET and there will be new data available there. There is obviously a once-a-day formulation of Jakafi. But more importantly, we have now turned a new wave of product in MPN with the CALR antibody and the V617F small molecule, where that could be truly transformative for patients with MF, PV and ET. So that, again, is a sort of a big step that has been taken fairly recently. And then the rest of the pipeline, where we have a number of new products entering Phase I, and we have a few who are now moving into the later stage of development, like oral PD-1 and the CDK2 inhibitor. So it's a sort of a phase in Incyte where the growth of the top line continues to be very dynamic. And that what's really important for everybody is obviously that we are seeing a lot of new contributor to the portfolio for the next few years.

Great overview. Maybe we can talk about capital allocation in some more detail. So company is currently at around $12 billion market cap. You have $3.5 billion in cash and growing. And I would say, line of sight into cash flow for at least the next 5 years kind of at a minimum. So how are you currently planning to invest internally in your own R&D, externally for potential business development opportunities? And then also are you considering buybacks or any other types of capital return? Maybe just walk us through your framework for all that.

So our priority right now is to continue to invest in growth, both internally as well as externally sourced assets. So when you look at our internal pipeline, we have 8 high potential impact programs that are in the clinic that could significantly add to growth in the near to midterm. And then we have earlier-stage programs that are either in the clinic or are coming to the clinic like the V617F program that we expect to potentially add to growth in the mid to longer term. So that's one area of investment, our own internally sourced programs. And then we are looking at external assets to supplement our internal programs. We had $3.5 billion of cash on our balance sheet, as you said, we have no debt, and that gives us firepower to be able to go out and be competitive and add programs to our pipeline and especially add programs in that midterm type of time frame, so towards the end of this decade. And that's in the case with our internal programs that are where we have programs focusing in oncology, broadly oncology and solid tumors as well as autoimmune inflam diseases we're looking at similar indications for the external assets.

That makes sense. And any type of preference at this point between those 2 broader indications you laid out? Or is this still kind of opportunity focused?

It's opportunity focused. We are not prioritizing internally or externally. We're looking at where our assets that are attractive that we could bring in that represent significant opportunities and are within our parameters of best or first in class.

Yes. And you obviously mentioned $3.5 billion in cash, no debt, a lot of cash flow. How do you think about deal size within that context because you have a fair amount of flexibility?

Exactly. It gives us flexibility. So we are looking at different deals, and different structures. And obviously, the structure plays a role as well as to how big a deal may be. But we have flexibility to look at smaller earlier-stage assets as well as bigger opportunities as well.

Yes. Got it. Thinking about SG&A spend, maybe just a broader question as we look out, say, over the next year, 3, 5 years. Just help us think about the trajectory of that.

So a lot of the investment, when you think about oncology in the U.S. is established, we can leverage that infrastructure. So for example, when you think about AXA, we have an established infrastructure that we can leverage. Same for dermatology. We now have the infrastructure in place. So the variability there comes with the new indications where we have the variable cost like we had with Vitiligo when launched and we started having DTC related cost for the Vitiligo indication in addition to what we had for AD. So we have in both areas, established infrastructure that we can leverage for existing assets. So where you may see growth coming is from new markets that we may be entering. So in oncology, again, in Europe, established infrastructure that we can leverage. In dermatology, new area for us. Germany is the first market that we launched Opzelura for vitiligo there. We built the infrastructure to support the efforts. And then as new countries come in, we'll be looking to build the infrastructure to support the program there. Specialty sales force, pretty focused, so the spend will be similar to that for a specialty asset.

That makes sense. So shifting gears then and going over to Jakafi and the LIMBER program more broadly. One of the more recent updates from the field was the pelabresib Phase III results. So I guess the most direct question for you is do you believe that they may have a path to approval without the symptom score?

Well, I think you saw -- you heard everybody speak about the 2 endpoints that matter to FDA. So the question is really going to be in the hands of FDA. I mean from our standpoint, we are looking at anything moving the field in combination with Jakafi as a positive. So in some way, any approval of a combination with Jakafi would be a good thing for Jakafi and for patients. So we really hope it would be the case on how the FDA will react. Frankly, we need to see first more data at ASH, I guess. And then it would be in the hands of the FDA.

Yes. That's fair enough. And do these data change how you're looking at investing in your own BET program...

Absolutely. Yes, absolutely because we -- I mean, it was part of what we said in the past of saying, we'll see this data, and then we can decide where to go with our own BET. It looks like this first line -- it's not only from the pelabresib data, you saw it with venetoclax, you saw it with parsaclisib. So now there are like 3 first-line combination with Jakafi versus Jakafi alone, and it's a challenging setting. So that's something to take into account. We have a very active, very potent BET inhibitor, and you will see some new data at ASH and it gives us a choice of going either in the first line. So that would be one option, obviously, in the suboptimal responder or maybe after Jakafi. So we'll be sort of getting all of that together for next year, and we plan to start our pivotal studies in '24.

Would you stage gate the start and the investment on those pivotal studies based on the Navitoclax and/or collaborative regulatory feedback?

No. .

No?

No, because the data will be available, and I think it's stats that will be driving our decision to go ahead.

That makes sense. Thinking about ALK2 and registrational trial design, still a little bit early there, but you've noted the potential for a frontline trial previously. So would this essentially look like a noninferiority versus rux monotherapy, maybe with the option for superiority if you can kind of maintain the dose frequency? Or is that the...

We don't know that yet. So we are basically in the dose escalation. We are looking at how you can maintain hemoglobin level while you are using an active dose of Jakafi because that's -- what we know is that a certain dose of Jakafi, you will see a drop of hemoglobin for a few weeks or months. And that's what we are trying to avoid. And when we establish that, and we are still escalating the dose then that would be the question of which Phase III is appropriate for FDA, but we don't know yet.

Got it. Maybe you could also just give us kind of a quick overview of what to expect from some of the combination data coming at ASH.

I think the combination, as I said, I mean, the combination data will be important because it's building on Jakafi. It will be showing increased efficacy, if you can, by combining with BET inhibitor, and we know from others that it is something very realistic on the spleen. So that's a good thing. At the same time, it's a little more challenging, and we'll be looking at the hemoglobin level in combination with ALK2. So that's a sort of building on Jakafi. What's really important for the franchise is that on top of that, you have AXA. And as I said, it's a very important new data with a new mechanism that applies across chronic GVHD at a different stage of chronic GVHD, which I believe will be a very big contributor. And it is abstract #1 at ASH, so it's not happening every day. And it is because it's important. And then there is data on V617F, all the preclinical package for V617F will be an oral presentation at ASH, which frankly, is if you compare to the importance of some of the combination with Jakafi is very different qualitatively because it is transformational for the treatment of this disease, not just MF, but it's MF, PV and ET. The same way, CALR last year was a planarization because it was transformational for ET and MF. So now we have CALR V617F, 2 different mechanism, 2 separate group of patients with different mutation where we are the first company to bring this potentially curative treatment that can really impact the cost of the disease, not just the symptoms and the duration of the effect. It is very different in the sense that now we'll be looking at a little burden and how we can change the course of these 3 diseases. So it will not be just prevent sort of replacing Jakafi, it will be expanding drastically the potential for this franchise.

That makes sense. Turning back to Jakafi monotherapy. I just wanted to clarify one data point from last earnings call. So I think earlier in the year, you guys have noted around 25% of Jakafi use was at the lowest 5-milligram dose. And on the recent call, you noted, I think 5% was. I just wanted to clarify if that 5% was for the myelofibrosis indication specifically?

Yes. What's happening in GVHD is that there are a number of patients who are starting at 5. So first, patients are not sticking with 1 dose forever. That's -- so it's a very fluid situation. And in GVHD, a lot are starting at 5, and then they will be going up after that in PV also. So the 5% is for MF patients, where it's basically the patients who have been dose reduced most of the time because of safety issues.

Yes. And is that a 5-milligram patient population in MF? Is that a reasonable way to think about the pool of patients that may be more likely to adopt OJJAARA and Vonjo moving forward?

I think Vonjo is -- I mean, I would not say it's the same. I mean the Vonjo is really a different group of patients based on platelets down at baseline. So I'll put that aside. And you know what it is. I mean we see it so it's happening and it has a limited impact, if you want, when you think of it and how it's impacting Jakafi. I think the momelotinib population. I don't know what it is. I guess, today, what we heard is that it's mostly patients who have been treated with Jakafi and could be potentially looking for an alternative JAK inhibitor after stopping Jakafi.

Got it. Maybe you could give us an update on once-daily Jakafi and where that sits today?

So once-daily Jakafi has been discussed with the FDA, and it's aim to discuss because it was a CRL saying that we need to establish that the difference we are observing between twice a day and once a day in the [ C-mean ] at steady state is not fully impacting efficacy. And that's what we are doing with 2 different paths. One is data-driven of showing that the current formulation that we have is, in fact, not impacting efficacy. So it's a discussion that we will have with the FDA in the next few weeks. And you can consider it as a low probability or high probability, this data is very convincing. And in parallel, we are looking at increasing the dose in the formulation by a small percentage, like 8% or 9% or 10%. And that would basically reestablish bioequivalence on the [ C-mean ] as well as AUC, and that will fulfill the requirement from the FDA. The problem with that is that it's a little longer. It will take probably -- you need to go back to stability, et cetera, so it would take 2 years.

And has any of your confidence around, I guess, the data-driven modeling approach right now? Has your confidence around the feasibility of that changed over the last month or 2 as you've analyzed the data and/or had any additional discussions?

On the higher dose? No, we are very confident on that. On the modeling itself, yes, we have a lot of new data coming from many of the big studies we have with Jakafi, and there is a good level of internal confidence. Is that enough to convince the FDA? I frankly think it's difficult to judge before the meeting takes place, which will be coming soon.

Yes. Sounds good. Going over to Opzelura on the commercial side quickly. And I know this has been asked in a variety of settings, but kind of level set. You kind of initially guided to 3 to 4 tubes a year, for atopic dermatitis. And right now, it's tracking I think closer to 2, maybe going up a little bit. right now. So the question really is, you've been guiding to 10 tubes a year for vitiligo, what gives you confidence that the vitiligo tubes per year might not be a little bit lower?

So it's completely different is that what is driving the use in atopic derm is the efficacy, is that patients will be using 1 tube and frankly, a lot of them will stop there because they don't need more. And that's something that in the pivotal study was mandating for a number of weeks to use the product twice a day. So we cut that by a lot to come to our guidance. The latest guidance was 2 to 3. So we are a 2-point something. So we are above 2, so that's good. But I don't think that will move to a big number -- a bigger number in the future. In vitiligo, it's a completely different story where you use the product and you start seeing efficacy after 2 months, let's say, usually, and you need to use it for 12 months, sometimes more to get full repigmentation. So the issue there is not that the product is working too well too fast, is that in fact, some patients are stopping treatment for a multitude of reasons that we are working on one by one. Some of them can be related to reimbursement. Some of them are related to compliance, good old compliance. People stop treatment. Some of them are like patients are starting to use the product on certain part of their body to check that it works before they will put it on their face, which is not illogical. So you see basically a curve of adoption that is very different from what we have in the clinical trial. So there are multiple ways we will be working in the future, improving compliance and getting to the target of 10 that we spoke about because if you use the product in the right way, you should be using around 10 tube per year.

Got it. And you've also noted a 60-40 split between atopic derm and vitiligo, obviously, vitiligo increasing over time. Are you able to see the split between new prescriptions coming in?

Yes. Yes.

Is that the total prescription...

That's the total prescription. I don't know the -- I think the new prescription will be way more eczemas and vitiligo because by definition, if the total prescription is 60-40, you have a lot of new prescription in eczema.

Got it. All right. Well, that actually just takes us to time. So I really appreciate you both joining us.

Thank you.

Thank you.