Incyte Corporation (INCY) Earnings Call Transcript & Summary

Great. Good morning, everyone. Happy New Year and welcome. I'm Jess Fye, senior biotech analyst at JPMorgan. We're kicking off the Healthcare Conference this morning with Incyte. I'm joined by the company's CEO, Hervé Hoppenot. And after the presentation, we're going to host a Q&A session. You're welcome to ask questions in the room, you're welcome to submit them over the portal. You're welcome to just listen to me ask questions. But hopefully, you guys will have some of your own as well so we can make it a nice interactive Q&A session after the presentation. So with that, welcome.

Very good. Thank you very much. Good morning. So I will speak probably for around 20 minutes. So we're speaking about where we are with Incyte. Before that, forward-looking statement, as usual. So what I would like to do is to maybe spend a few minutes on where we are today and then give you a picture of where this is going because that has been a big question for us obviously over the years. So a quick reminder on Incyte, it's a research-based company. It has 3 technologies. We are working from when a small molecule where you see the list of molecules that have been developed by our team. And then we have diversified a few years ago into monoclonal antibody and bispecific, and we have now in the clinic a number of products that are coming from that new discovery flow. On the clinical side, we are organized in 3 different groups. In fact, one is about MPN and GVHD. It's basically the Jakafi franchise life cycle management in some way. We have oncology, hematology, any type of tumors that where -- and the hematology disease where we also have a number of products in the clinic. And more recently, we have developed a dermatology portfolio, where I would be speaking about it, we have a number of advanced products. On the commercial side, we have 3 different organizations, one in North America. So it's U.S. and Canada, where we have a number of products that are commercialized, 5 by Incyte and 2 by partners; in Europe, where we have 4 products commercialized by Incyte; and in Japan, where pemigatinib is commercialized by Incyte and the rest of the portfolio is commercialized by our partners. So that's a picture of Incyte today. In terms of revenue, if you look back at the past 5 years, you see around 20% growth per year CAGR. So it's moved from $1.4 billion to $3.2 billion last year in 2022, so a growth that has been fairly steady coming from new product being launched and existing -- growth of the existing product. During that same period, you can see here the leverage we have been creating between the top line is the revenue line. Total revenue this time with a CAGR of 17%, so including the different milestones we are receiving. And the lighter blue is R&D and SG&A. So the area between the curve is more or less describing the operational profitability of the business. And as you can see, the growth of expenses has been at a lower rate than the growth of the revenue, which has created this leverage between the 2 curves. It's also important when you look at this to realize that the blue curve includes the creation of the dermatology franchise, which was happening between 2020 and 2021. So that increase during this year is coming from dermatology, commercial organization being put in place and now it's done and it's in a large -- very large part behind us. Now zooming on 2023. So 2023, looking at the 9 months results that we have published a few weeks ago. You can see the growth is still 15%. So the dynamic growth, double digit coming from Jakafi, $1.9 billion now for the first 9 months of 2023 and emerging Opzelura at the level of sales that was $229 million in the 9 months, so becoming significant. On the commercial side, I think it's also important to realize that during this 2023, we have received small biotech exception status, which is this IRA implementation that will be different for companies that had certain characteristics of that portfolio, and that -- the companies that became eligible for this small biotech exception. What it does for us, which is very meaningful, is to exempt Jakafi from selection for price negotiations. So that's certainly something that has an impact. But it's also changing the catastrophic coverage phasing through 2030. So during the year, where the catastrophic coverage is moved from patient to company. In fact, Incyte will have a rate of increase of that contribution that is well lower than for companies who don't benefit from the small biotech exception. So overall, I think it's a success. I think it's important because IRA is also including the reduction of co-pay for Medicare patients, which we believe will have a positive impact on the Jakafi business in the U.S. So a successful year on the commercial side. On the pipeline on the right, you can see the key events progressed during the year. Axatilimab, the BLA has been submitted in December. So it's now our under review. Very interesting data with povorcitinib, we'll speak about that. We also had pediatric atopic dermatitis data with Opzelura that was positive. The approval in vitiligo, and as I will show you today, positive data in HS with Opzelura. And then a number of earlier product moving forward, CALA, that was at plenary at CALR a year ago. JAK2V617F where the IND is now filed. We spoke about it during ASH. We can have -- I will speak a little bit more about why it's important. The CDK2 project, which has been something that has been in the clinic now for a few months, where now we are seeing at the dose and schedules that we have reached good signal of clinical activity. And the new product that we just announced today, which is KRASG12D inhibitors that is starting in the clinic very recently just a few days ago -- weeks ago. So a good year in 2023. So what I would like now to do is to move to the future and what's going to happen in the next 7 years. And I -- we tried on this slide to basically give you the list of what we believe are the key projects that will be impacting our revenue during that period of 7 years. So you see that on the left. And on the right, to position when it could be approved in the U.S. So it's basically trying to give a range of when we believe this could be impacting the revenue. And with the shade of the blue, the size of the market -- of the addressable market that each of these projects could be impacting. So as you can see, there are like 18 of them. In fact, some of them are very derisked because they are post proof of concept. I mean, we spoke about axatilimab. That is already submitted at the FDA. We spoke about some of the RUX cream data where we have already a randomized study showing the proof of concept in pediatric AD and in HS for povorcitinib. We have 3 indications where we have already proof of concept. And some of these projects are obviously less -- a lower probability of success because the proof of concept has not yet been established. I think what's important in this picture is to see that, that's more than 10, so between a little bit in the range between 10 and 15 of this project. We will probably be able to cross the finish line and will contribute to our revenue in the year '24 to '30, which is obviously ensuring the growth of the revenue inside in the future. So let me spend a little bit of time going through some of these projects. First is axatilimab. So you are familiar with the data that was presented at ASH. It's a very important product for patients with chronic GVHD. Chronic GVHD is a disease. As you can see in the middle that in the third line where we will get the first indication, is around 3,500 patients in the U.S. But in the first line where we are developing it in combination, which is around 12,000 patients. So meaningful population that could be addressed with this product, a unique mechanism of action addressing both inflammation and fibrosis, and a project that will be contributing at the end of '24, of this year, assuming approval by the FDA. So the Phase III study in the first-line setting are being initiated in combination with steroids and in combination with Jakafi. Now the other part of the Jakafi franchise, and just a reminder that the franchise that we have calibrated and peaked sales around $3 billion, and that's where it is going, is made of GVHD and then -- and what we call MPNs, which is myelofibrosis and PV. And as you can see, it's around 16,000 patients that are on therapy today with Jakafi in MPN. So the first aspect of this franchise is how to improve over Jakafi, and that's what you see in the middle of the slide with an XR formulation, so once-a-day formulation, which is important for combination with other products. And 2 projects, one ALK2 and the other BET, that are designed to be, one, improving the anemia profile; and with a BET inhibitor, improving the efficacy of Jakafi. So it's basically improvement of our Jakafi, and that could basically add to the pool of patients that are eligible. Around 8,000 additional patients could benefit from this product versus the current pool of patients on Jakafi. On the right is really a very different approach, which is, 2 different mechanisms, CALR and 617F that are addressing the allele burden reduction goals that everybody has in this type of disease. And I will be speaking about that. What's important to realize is that here we are not about adding to Jakafi. We are literally about changing the paradigm of treatment of this patient, not only in MF and PV, but also in ET, which is expanding the potential addressable population very much compared to where it is today. So it's a very transformative approach in terms of how do we want these patients to be treated based on their mutation, and I will speak about it in the next few slides. So first, a word about the BET inhibitor and ALK2 inhibitor, that's data that was presented at ASH. You can see on the left, the BET inhibitor in combination with RUX and the impact it has on symptoms of patients. So it's a drug that has activity. And we know that from other data from other companies. So BET inhibition is active in MF. And we have [indiscernible] product. The dose we are speaking about 6 and 8 milligrams. So it's a relatively low dose compared to other BET inhibitor, and it's a product that could be in Phase III during 2024. And that's what we are doing, trying to plan for the Phase III to start around the second half of the year. On the right is the data we showed on zilurgisertib, which is our ALK2 inhibitor. And again, it's in combination with ruxolitinib. And it's showing the hemoglobin level, so change in hemoglobin level over time. And obviously, the goal here is to maintain or improve hemoglobin profile for these patients, where traditionally treatment with ruxolitinib will lead to a decrease of hemoglobin transient, but visible where, as you can see here, we don't see it yet on these patients. There is still data to be produced with this program because we need to show that the same is true in the first-line treatment when patients are initiated on ruxolitinib, and that's what we are doing. So it will be a little bit behind the BET program but we anticipate to have the proof of concept around midyear 2024. Now here is a picture that led us to this program. It has been a year of work in the lab, in fact, where what we see here is that 90-plus percent of patients with either MF, PV or ET, have either a mutation of CALR or a mutation of JAK2V617F mutation. So -- and they are not overlapping because it's one or the other. And then there are a few patients with different oncogenic drivers. But for most of the patients, 90% of them, it's one or the other. And you can see at the bottom, the number of patients we are speaking about. And what we have developed is 2 different products. The first one is an antibody targeting mutant CALR. And as you can see at the top, this is an experiment on the spleen size of animals that have been treated and untreated. And you can see the impact on treating with this product on splenomegaly, which is certainly one of the outcomes we are looking for when we are in the clinic. And at the bottom, on platelet counts, where, as you can see, the effect of the drug is very quick and very visible. It's important is that if we are successful in having the same type of result in patients, we will be literally in a disease-modifying mode, where you will quickly see a reduction of the allele burden like you have seen in some other disease in hematology. And that would be obviously changing meaningfully the way people are thinking about treating these patients. So it's an important project. It's in Phase I. We have patients being treated as we speak. And we will see some of the -- depending on the speed at which we can conduct the Phase I, we can see some of the data at the end of the year or beginning of next year. The second mutation is the 617F mutation and this one is a small molecule. And what you can see on the right is the selectivity of using this product versus using ruxolitinib on the left to mutant clones versus wild type. And the space between the 2 curves, on the right side is basically a space that can be used to have a selected eradication of the mutant clone and that's what we are looking for in the clinic. This drug is in Phase I now or the Phase 1 is being initiated this quarter, and we expect also to start in result by the end of the year and maybe at the beginning of next year. It's a little bit behind the CALR project. Now moving to the oncology pipeline. There are 3 programs that are advanced in this field. So tafasitamab where we have 2 Phase III studies ongoing in follicular lymphoma and in first-line DLBCL. The oral PD-L1 where we have 2 sets of studies that's going in monotherapy and combination, and you can see the time line here of what we are expecting. And then the CDK2 program. The CDK2 program is something we didn't speak very much about but I want to update you on what's going on there. Because now we are at the stage in the Phase I where we have reached an active dose. We have identified the schedule of administration that is safe. And in fact, we are seeing PR responses in multiple patients across different tumor types. So we are at the stage of saying this could be a drug. We know it's a competitive field. There are other CDK2 being developed but we believe this one, in fact, is at a stage where it could be becoming successful. As you know, the CCNE1 amplification and overexpression is mostly in ovarian cancer and some form of breast cancer after treatment with the CDK4. So that's a project that is progressing well and where we expected -- we are expecting to see data in 2024. So that will be sort of showing the profile of this product, which we believe has a good chance to be successful. Now moving to dermatology. So first, a few -- 2 years ago, when we launched Opzelura, there was a lot of unknown about how this product will be established on the market in the U.S. So this is the monthly TRx post-FDA approval for a number of products that have been launched in the field. And what you can see is that impact of Opzelura is one of the most successful launches in the area. It's a number of TRx. So it's not dollarized, it's a number of prescriptions. But it is showing that the adoption of Opzelura has been good and has been steadily growing month after month since we launched it 2 years ago. What's important also when we think about Opzelura to look at how it's going to evolve over time. So you see on the left, the 2 indications that are approved that are atopic derm and vitiligo. That's where the current commercial effort is being done. We have positive Phase III in pediatric atopic dermatitis and then we have now 2 more indications where we have Phase IIIs that are ongoing in prurigo nodularis, are being initiated relatively soon in HS and 2 indications in lichen planus and lichen sclerosus where the proof-of-concept studies are being executed now. So basically, it's 5 indications on the left where we have proof of concept or already approval and 2 where we are still in the phase of pre-PoC. You can see the population at the bottom is an impact -- I mean, it's a large number of patients would be eligible for many of these indications. So let me remind you of some of the data. This is pediatric atopic dermatitis. And as you can see on the right, we have very clear efficacy, a very clean safety profile in this patient population. And it could be really important if you think of pediatric eczema and itch being driving the cycle of itching, scratching, infection, which is a big problem for kids with eczema. So itch -- with the power of this product is to reduce itch in minutes [indiscernible]. We did study showing that after 15 minutes, you get already a very meaningful decrease of itch. So we think it's a good opportunity. It's around 2 million, 3 million patients in the U.S. could be potentially eligible. So it's a meaningful increase to the potential of Opzelura in atopic dermatitis. Now concerning HS, and this is new data. We did a Phase II study that is basically comparing ruxolitinib. You can see it in blue on the right 2 placebo vehicles, which is inactive cream. And what we are showing is that by using ruxolitinib in this mild HS population, we are able to improve on what the change of AN count, which is the end point that we are using in this study in a way that is meaningful and statistically visible as soon as week 8 in the treatment. And you can see the improvement over time from week 8 to week 16. So it's an important study. The first time there is a study showing that kind of result in that population. It's a very well-tolerated product, as we are used to. And we will be showing this data at the Medical Congress this year, and we are also evaluating starting the Phase III in the short term. So that will be a new indication. It's a unique indication. There is no product really approved for that patient population in HS. Now moving to povorcitinib. So povorcitinib is a JAK1 selective oral long half-life product. It has now 3 indications where we have proof of concept. So HS, moderate to severe, so different population from the one we just discussed with RUX cream; vitiligo; and more recently, we announced prurigo nodularis. It's also in Phase II pre-PoC for asthma and CSU. So that's data that we will see in the next few months. Let's just have a look at some of the data we have generated with povorcitinib. So the HS data is here. It is showing HiSCR50, which is the primary endpoint in that study in the range of 59 to 67%. So that's something that is -- at week 52. So it's a very high level of efficacy. And very interestingly, it's also showing HiSCR100 for 20% to 30% of patients, which is something that is not seen with most of the products that are tested in HS. So the Phase III studies are ongoing in this indication. In fact, they are growing very well. And we are anticipating to see the results in -- I guess, probably in 2025 for this indication. It's interesting to -- if you compared to other object that have been in the green [ book ] in that case that have been tested in somewhat the same population. So these are separate studies, not a randomized study, separate studies. Comparing the result, what you see is that the efficacy level we have with povorcitinib is at least as good as what you can get from other products and maybe better. And that can be explained by the volume of distribution of the product, the long half-life and the selectivity to JAK1 and the dose that we can be -- we have used in our study. So you can see here on 3 different criteria how internal study comparison will lead you to see a very competitive profile for povorcitinib in HS. In vitiligo, we published this data a few months ago. So it's -- you can see from the picture at the bottom right, it's a very meaningful. So we are dealing here with patients who have an extended form of vitiligo treated with an oral product and where you can see over time the repigmentation taking place in a way that is very meaningful. It's an important indication because we know the suffering of patients with vitiligo. And we know that from the launch we are doing with RUX cream for a population of patients who have a less extended form of vitiligo. And we believe it has the potential to be an important product for them. You can see the data in terms of VASI50, the Phase IIIs are enrolling as we speak. And this is a project that will be like a second indication for povorcitinib after HS. And then the last one we spoke about recently is prurigo nodularis. You can see here on the right, the each improvement that has been seen in our study, each is a key manifestation of prurigo nodularis. Again, a very active product compared to other modalities that are used. So full data will be presented at the Congress in the first half of this year, and the Phase III is also planned and underway. So I will stop here, and I will welcome any questions you may have. And as you can see, I mean, from this back to the program for the next few years, there are a number of opportunities that we have to continue to grow our revenue in a way that will be very dynamic and based on innovation. So I will stop here, and I will ask maybe some of my colleagues to join me on stage to answer any questions you may have. Thank you very much.

Great. Well, if there are any questions from the group, feel free to raise your hand in the room or submit a question on the portal. Maybe just starting with Jakafi, though as we are heading into 2024. How should we think about the growth rate for this product this year and in coming years? And maybe a little bit more specifically within your approved indications, where do you see the largest growth opportunity in '24?

Okay. So as a reminder, we have shared in the past that we expect Jakafi to be a $3 billion product by 2028. If you think about the guidance that we have provided for 2023, it is at around $2.6 billion. So you can see the trajectory between 2023 and 2028. In terms of the future growth drivers, we expect PV to play a significant role, both because it's an indication that is still relatively underpenetrated. We have at around 25%, a bit over 25% penetration in PV. So there is a lot of room still for growth. And also because as Hervé mentioned in his presentation, we expect IRA to have a meaningful positive impact, especially on PV, given that the out-of-pocket for patients -- Medicare Part D patients would be lowered. And this would help with access, enable patients that in the past may have chosen not to get on therapy, now to be able to afford and get on therapy. So as you look at the 3 indications, we eventually expect PV to be the largest of the 3 indications, followed by MF and followed by GVHD.

So you mentioned IRA and how the catastrophic coverage should help affordability in patient out-of-pocket. But there's a flip side to that, right, where the drug companies are now responsible for more of the cost of these products in the catastrophic phase. How does that kind of net out for Incyte? Is that a net favorable from a volume perspective? Or do you kind of give it back on the net price side?

So first, it's good for patients, which I think is really important because there is all kind of comments we can make about IRA. And we -- I think there are a lot of problems with it. But there is one thing that is certainly a good thing is the cap on out-of-pocket for Medicare patients is going to be around $3,300 in 2024, and we'll move to $2,000, so $178 per month in 2025. And that will do 2 things. It will reduce the number of patients who get a prescription and never get their drug because they cannot afford to pay the co-pay. And for us, because we have a program that is providing free drug for patients who cannot afford it, it would basically move some of the free drug into the commercial business because $178 per month is very different from what today could be thousands of dollars over the years. The catastrophic aspect of it -- catastrophic coverage aspect of it for us will be less of a problem because of the small biotech exception, where the ramp-up of our contribution to catastrophic is, in fact, very much slower than what it is for companies that don't have the exception. So that should be, for us, net-net positive.

Maybe sticking with Jakafi a little longer. You've had some competition enter the space in MF. So how should we think about Jakafi's positioning with [indiscernible] recent approval? And are you seeing any impact there?

So in MF, I mean, in the last -- in the third quarter, I mean, all the numbers are out and there was no -- it was a very small number of patients at that point. I think it's important to realize that the goal of MF treatment is both to reduce the size of the spleen and to reduce symptoms. And in more than one head-to-head comparison, in fact, Jakafi was the best product doing both, in -- and in the case of symptom, statistically significant. So people will have to make decision about stopping Jakafi or not starting with Jakafi. And what we think is that it will stay as the standard of care for most of the patients.

So switching to Opzelura. How should we think about the kind of key drivers of growth from here, right? It started with AD, but it seems like vitiligo is really taking off. Is vitiligo going to eclipse AD and come up -- or what time frame does that happen?

It could be, I must say, it's literally 2 different products with 2 different dynamics. So Opzelura in atopic dermatitis is very obvious for physicians and patients to be used because of its safety and efficacy profile. The question is, how do we make it simple for the prescriber so that they will not have the burden of receiving phone call from the insurance company, blah, blah, blah. They want to have a simple process. So our job there is to work with the insurance company, and we are doing that. We have new contracts that we are putting in place to make it easy for prescribers to use Opzelura because they want to use it more. And it's just a question of administrative burden that needs to be solved. And if we can solve that, it will -- it could be a multiple of what it is -- it will be, I think, a multiple of what it is today. In vitiligo, the dynamic is completely different. It's how to bring patients back to the physician's office, how to get an appointment. In fact, it's becoming one of the big issues, believe it or not. It's very long to get an appointment to a dermatologist. And then when the prescription is made, to make sure that the patients are using the product as it was designed twice a day. And it takes a number of weeks before you start to see the effect, so the compliance aspect is very important. And we are obviously working on both. But I think both of these indications will contribute to the growth of Opzelura. And frankly, as you see on the slide, there are also a number of new indications for Opzelura that would be coming over time and will be contributing to the growth of the brand. So it's a brand where we see a dynamic over the long term of growth coming from adoption in the existing indication but also contribution of the new indication to the product as we have seen with Jakafi over a period of 10 years. So it's one of these brands that will be growing over a long period of time.

Okay. And I think last week, you made some comments over on the number of tubes in vitiligo and kind of not quite being at 10. So where are you? And do you think you will get there? Or...

So we think we will get there. When you look at the clinical data and the fact that patients -- repigmentation is really happening and that it takes a number of months to have a full level of repigmentation, I think we will get there. We are not there yet. There are patients who are trying the product on some part of the body before they will use it on their face. So that's the behavior we have seen in some cases. And there are patients who are receiving the product and not persisting in their treatment. And that's what we are working on with the provider, with the dermatologist, on education for patients to make sure that they will be using the right way. So we are not there yet, but it's certainly making progress. And we can see the refill rate is, as a percentage of the total, is going up every quarter or every month.

All right. We're going to switch some questions from the portal here. The ruxolitinib XR, you've talked about kind of going for like a higher dose of the reformulated tablet. And I know you mentioned sometime like stability is part of the time line and then kind of like the testing you have to do. So like when are you actually kind of filing that product?

So what we guided at during the ASH meeting when we gave an update on RUX XR was that we are now developing a larger tablet, if you remember, in order to be able to demonstrate bioequivalency with a twice-a-day ruxolitinib. We haven't provided an exact time line. We said approximately will take about 2 years to make the tablet run the pilot study and then run a very straightforward bioequivalency study that we think will demonstrate that we can deliver the same PK profile with a once-a-day as with twice-a-day Jakafi. So we're going to stick with that approximately 2 years from now, Jess, but that's our best estimate right now. And we'll provide an update as the data evolves in the next year.