Incyte Corporation (INCY) Earnings Call Transcript & Summary

Okay. Great. Let's go ahead and get started. Welcome, everyone. Thanks for joining. 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. Before we get into the discussion, let me read a brief disclosure. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, happy to have with me on the stage, Christiana Stamoulis, CFO; and Pablo Cagnoni, Head of R&D from Incyte. Thank you for joining us. We really appreciate it.

Thank you for having us.

A lot to talk about, a lot to unpack for Jakafi in your pipeline. But before we go there, maybe we could just start with some opening remarks on, I guess, key areas of focus for the business from your standpoint coming out of 2Q heading into the end of the year. And what do you think people should keep top of mind for the time being?

Okay. Great. So first of all, as you know, not just Q2, 2024 has been a very busy year for Incyte, a year where we have made significant progress, both on the commercial side as well as on the development front. Commercial year-to-date or in the first half of the year, we delivered almost $2 billion in revenues, representing a 9% year-over-year growth driven by both Jakafi, where we continue to see growth in demand, especially in PV and GVHD and stable demand in [ MS ] and Opzelura where we continue to see growth in both AD and Vitiligo, 50% year-over-year growth in Q2. So a significant progress and progress that we continue -- we expect to continue to see through the course of the year. So that's one of the areas of focus, execution on the commercial front. We also recently announced that we received FDA approval for axatilimab in third line chronic GVHD. This would be a new program in our commercial portfolio, and we expect to launch over the next few months. Now moving to the development front, a lot is going on there. Just recently, we shared the update on 3 Phase III studies where we had positive top line results. And these are retifanlimab in anal cancer and also lung cancer and tafacitamab [indiscernible]. And we will be disclosing or sharing data from those studies in the near term, starting with ESMO where you'll see data from the Reti study in anal cancer and then later this year, we'll be sharing data on Tafa as well. Then in terms of the rest of the pipeline, this year, earlier this year, we added 2 additional programs to the IAI part of the pipeline. We now have 4 programs in development, Opzelura, Povo and the 2 programs that we acquired through Escient, which have all best-in-class and blockbuster potential. So we expect to be sharing data on a number of those programs over the next 6 to 12 months with programs from the Escient acquired -- data from the Escient-acquired programs in 2025 and also starting to show pivotal trial data in -- from Povo starting with HS early in 2025. And then you look at the rest of the pipeline, the oncology side of the pipeline, where in addition to the 2 legacy programs, Tafa and Reti, we have been significantly evolving the rest of the pipeline to focus our efforts on programs that we view as high potential impact programs, programs that have first or best-in-class potential and represent blockbuster opportunities, like mutant CALR, V617F, CDK2 and others. And over the course of the next 6 to 12 months, we expect to be sharing data on all of those programs, starting with CDK2 where we will be sharing data at ESMO next week. So there is a lot going on with the pipeline and a lot of additional visibility that we will be providing on each of those programs over the next 6 to 12 months. And as you know, we decided to really focus on aggressively pushing forward those programs, and prioritize others that we then meet those high bar that we have set for programs in our portfolio.

Great. It's a helpful overview. And a lot to talk about. Maybe we can just start with Jakafi and some of the initiatives you have underway. So on Jakafi, you've historically mentioned that the peak sales here in the U.S. could reach roughly $3 billion before LOE. Based on the growth profile you've discussed recently, do you think there could be upside to that number?

So we expect that by 2028, we would be at $3 billion plus and when you look at the growth trajectory that we are on, the guidance that we have provided for this year, they all are consistent and towards that $3 billion-plus type of peak sales potential. We're seeing growth, as I mentioned, be driven primarily by PV and GVHD and stable demand in [ MS ]. And we expect this growth to continue and especially PV growth where starting in '25, given the IRA changes to the co-pay for patients we expect that would have a positive impact on PV given that there would be improved access for patients with PV.

Understood. And in MS, there's been, call it, over the past year, a good amount of focus on the impact or potential impact competition could have for Jakafi. Are you seeing any impact either from a new patient start perspective or from a duration perspective from the entrant of GSK's momelotinib into MS?

So we haven't seen any impact on either. You saw the results that we shared since the introduction of there is no impact on demand. If anything, in Q2, we saw a 2% increase in demand. So the demand has been stable or a slight increase since the introduction of Ojjaara. And in terms of the duration of -- on therapy, we haven't seen any impact either. Jakafi is a well-established therapy for MS. The benefit is well understood, well established, is the only drug where you have 5-year survival data on patients regardless of anemia. And it's well established. It's hard to move a therapy like Jakafi.

Understood. And to help with Jakafi life cycle management, I know you've discussed previously a couple of different efforts, 2 of which I believe you've guided to data on by year-end are the BET inhibitor and the ALK2 inhibitor, just update us on where those efforts stand and what people can expect to learn by year-end?

Yes. So the 3 pillars of Jakafi, I think just to broaden the answer a little bit is, one is obviously to continue to make Jakafi available as many patients as possible and obviously expand the opportunity for patients with PV. The second bucket is how can we optimize outcomes in patients that are candidates for Jakafi today? There's 3 ways to do that. One is we're doing a once-a-day formulation, the XR formulation. We're going to run a, b, study, we'll have the results next year. If that study demonstrates bioequivalency, then that will be a filing, and we should have an approval well before the 2028 patent expiry. The second part of that is improving outcomes by combining with 2 different medicines, as you point out, a BET inhibitor and an ALK2 inhibitor. The ALK2 inhibitor, what we've said and we remain convinced that we'll have enough data this half to really make a decision on what the next steps are for that development. I think it's fair to say that so far, the data has not conclusively demonstrated that we can impact what we wanted to do, which was the anemia induced by Jakafi in some of the patients. Now most patients with MF have anemia at entry. Those patients have been demonstrated to be candidates for Jakafi. Their survival improvement in patients with a need just to -- so we're aligned of this question about anemic [ patient ] Jakafi. If you look given out the COMFORT data, the median hemoglobin was clearly in the anemic range, and those patients drive benefit from Jakafi. But we're trying to make that even better with an ALK2 inhibitor. Will confirm whether the data supports further development or not. With a BET inhibitor, we've shown data, and we'll continue to update you showing, what I believe is, pretty clear there's a clear impact on symptoms with our BET inhibitors as a single agent and there's a clear impact on spleen reduction with our BET inhibitor. What we need is more data and in combination with Jakafi. We think we'll have that this year, and then we'll announce what the plans are for potential pivotal trials with our BET inhibitor, whether in combination or second line or single agent. So going back to the question and to simplify it, we will have, we believe, data in the relatively near term to tell you what the next steps are for those 2 programs.

Got it. For the ALK2 inhibitor for that combination, is there a threshold you're guiding to in terms of either hemoglobin change or transfusion independence rates for kind of gauging success for that readout? Another way to ask the question is also, is that readout going to be accompanied with the actual go/no-go decision?

Well, that's a bit strong right now. I mean that program needs more data. I mean, we -- the most recent update we've shown, we didn't have nearly enough patients in what I consider the critical group there with the trial Group C, which is nearly diagnosed patients in combination with Jakafi at the right dose, which we think is at least 600 milligrams, may be higher. That's the dose that we've shown can suppress subsiding, and we believe it's going to make a difference. If that will work, that's the dose that will make a difference for these patients. I think the possibility of converting transfusion-dependent, transfusion-independent patients seems that's going to be unlikely to happen. And that's based on data we show, and I think that made that statement before. Our focus now is to see if we can combine with Jakafi and prevent a hemoglobin drop on Jakafi. If we can keep the dose intensity of Jakafi more consistent over time by combining ALK2 inhibitor, good things will happen because we know that those patients will have better outcomes. So that's the goal of the program today. I do think we'll have more data this quarter, this half, and that will help us make a decision, whether it's a go/no-go this half, I'm not quite ready to commit to that.

Understood. Okay. So assuming that one or both of these therapies is successful, you want to progress it with Jakafi. What are the, I guess, commercial approaches that you have in mind to make sure that Jakafi is used -- branded Jakafi is used with the ALK2 and the BET inhibitor and that you don't have [ continue of ] Jakafi being used with one of these medicines?

Yes. So one of the key aspects for us there is -- this is why one of the reasons why we're developing the once-a-day formulation. And one of the advantages we have with our BET inhibitor as the dose is much lower than for other competitors. And we believe it's possible to develop a fixed-dose combination with those agents or at a minimum, it co-packaging of those agents with they're commercialized as a bundle. So that's the way we see this evolving going forward. Now we're several steps between now and then, but that's basically the plan. the third pillar of the Jakafi or MPN strategy is, obviously, our mutant CALR and 617F inhibitors, which enter the clinic recently. We will have data for both next year, our mutant CALR antibody has been in patients now for -- since end of last year. The V617F inhibitor entered the clinic early first in healthy volunteers, early this year, first in healthy volunteers we're now moving to patients. And I think those 2 programs are really important for patients and for the MPN franchise because we really are trying to change the goal of therapy in MPNs from simply improving on symptoms and [ sprain ], which is really important for patients to really trying to see if we can remove, eliminate the malignant clone in patients with different MPNs improving patient outcomes and also dramatically expanded the addressable population that we would have.

Understood. Understanding it's early, but what could strong POC look like for both programs once we have data next year? What would be satisfying for you to see?

Look, you need to see some impact on traditional endpoints, blood count, spleen, et cetera. I mean that's some impact on that, obviously, is part of the story here. But the second question is, do we see evidence, even early evidence that we are decreasing the burden in these patients. We know that occasionally patients on Jakafi after a long period of time have a small decrease in [indiscernible], but it's rare, it's slow and it's not -- it's certainly nowhere near complete. What we expect to see with these programs is a more clear evidence of [indiscernible] reduction in addition to traditional MPN endpoints.

Got it. Okay. And remind us from an addressable patient standpoint, what success would one or both of these could do to how broad your reach is?

Right. So if you take MPNs, myelofibrosis, polycythemia vera, which are both now -- Jakafi is approving both, plus ET, essential thrombocythemia, almost all patients with those 3 diseases have 1 of the 2 mutations, either mutant CALR mutation or V617F mutation. They don't overlap, but almost all the patients, 90-plus percent have 1 of the 2. So basically, the population goes up to a couple of hundred thousand patients a year. PV particularly, almost all patients with PV are V617F-positive. So this is a dramatic shift from where we are today, which is MF and PV. ET is out of the market, is really broadens the population quite dramatically.

Understood. And could you remind us roughly how far does IP stretch for both of these efforts? Is it pretty long dated?

Disclosed IP. These are recent programs. We have a really long property. There's absolutely concerns. They just entered the clinic. They were both discovered in-house. So there are no encumbrances. There's very clean path.

Got it. Okay. That's helpful. Maybe it's a good point now to pivot to IAI. Let's start with Opzelura. So how are you seeing sales split between AD and Vitiligo? And where are you seeing more of the recent growth that you've talked about come from across the 2 indications?

This split as of Q2 was 60-40. 60 AD, 40 Vitiligo, with growth coming from both indications. We've seen growth both in total [indiscernible] as well as new patient growth. So you continue to show significant growth and growth in refills, significant growth in resales. So going forward, we continue to expect to see growth in new patients coming into both AD and Vitiligo as well as growth in refills. Where in the case of AD, we are probably steady state in terms of the number of tubes on average that the patient uses, which is a little bit over 2 a year, in line with the 2 to 3 tubes per year that we were expecting, closer to the lower end of that range, basically because of how efficacious the cream has proven to be and the fact that patients only need to use it on an as-needed base and the impact has been very rapid. And then the flare [indiscernible] come up back for a period of time. In the case of Vitiligo, we are still very early in terms of the utilization. And there are a number of programs that we are pursuing to address the current utilization. There is not the level of adherence that we would like to see. And we're working on a number of programs and especially physician and patient education in order to ensure that they understand how the cream should be used, it should be used to it should be used for a period of time before they are able to see pigmentation and the importance of speaking on [indiscernible] with the proper usage. And we expect that those efforts would lead to better adherence and would lead to a higher number of tubes, which would then have an impact on the refill rate.

Understood. And from your clinical experience, patients were using roughly 10 tubes per year?

It was higher. And we had said -- when we launched we had said that we expect that in vitiligo, the utilization would be much higher than in AD because it's continuing to use and it's twice a day. But -- and we had adjusted the clinical experience for real world type of compliance, and we will have assumed that around 10 tubes a year. We need to see how it will play out in the real world. We don't have that information yet because again, we are still at a place where adherence is not yet where it should be.

Understood. I know in addition to adherence, one thing you've spoken about for the Vitiligo story is patient activation, just getting patients that previously didn't actively seek treatments because they didn't really have anything to seek getting them back into the treatment funnel and getting them back in front of doctors so that they can be exposed to or become aware of Opzelura. How is that effort going? What are you doing to kind of help activate the patient base there? And how do you track success with that metric to see if there's new patients coming in that weren't coming in previously?

Yes. So I think it's fair to say that right now, most of the patients we're getting are the patients that have been actively seeking treatment, patients that have been in the dermatologist office. So it's easier for them to get an appointment and to get on therapy. But we are working on, to your point, activating the 90% of the patient population that has not been actively seeking treatment in the past. And there are a number of efforts that are looking to do that. [ DTC ] is one of them. And we are seeing good response to our ads. They are memorable, patients are going into dermatologist office and asking for Opzelura and the majority of patients that ask for Opzelura qualify to be put on Opzelura. So that has a good impact. Physician education is very important. And again, we are doing a number of initiatives there, not just focusing on adherence, but getting them educated around the therapy and the benefit that it could have on patients in order to make sure that when their patients reach out or they can reach out to their patients and inform them of the new therapy that is now available for vitiligo and repigmentation. And we're also working with that with CACI Group, so that is also a very important part of the efforts to activate those inactive patients. It would take some time. And also it takes time to get them into the dermatologist office. To get an appointment, it takes 6 months or more. So -- but this is a funnel that we expect to be fueling growth over the mid and long good term.

Understood. And you're also developing povorcitinib for vitiligo. So a couple of questions there from my side. First, where do you see the [ oil ] versus the topical kind of settling out in the market? And then second, do you think this patient activation dynamic, do you think this poses any sort of risk to the commercial opportunity for neural therapy in vitiligo?

Do you want to start?

Certainly. So there's a couple of things. First of all, with Opzelura, as Christiana described, one of the things we're working on is patient adherent. It's not very cumbersome, but I understand some patients have a hard time with twice a day continuously, and it takes 6 months, right? for repigmentation to occur. So maybe those patients were elect to take a pill every day, and that will be simpler in the case of assuming that data are positive and we get the drug approved. There's a little bit of overlap in the potential indications, patients between 5% and 10%. Obviously, with more than 10%, those are going to be povorcitinib patients; less than 5%, they're going to be Opzelura patients. So I think for that middle band is going to be patient preference, to be honest with you. For the others, obviously, the labels are different, depending on the extent of the affected area.

Understood. Okay. Great. Maybe let's pivot then to the assets you acquired through the Escient transaction. I'd just love to get your sense of the rationale for that transaction and what you saw that gave you confidence in these assets and looking towards initial POC datasets, what you would guide people to look for when those data readouts are available?

Certainly. So look, we obviously have what we believe is a growing and very interesting franchise. We had a strong focus on dermatology right now, but broadening into other areas, povorcitinib is in 2 randomized proof-of-concept trials in Asthma and Chronic Spontaneous Urticaria that are going to read out the second half of next year. So in that context, we have been doing internal work on MRGPRX2 as a target. We have done internal biology work to understand the target. So when we looked at the landscape, we saw that Escient had would looked at the time and we confirmed is the first-in-class MRGPRX2 inhibitor. We are aware of the competition, but we are ahead. By any measure, we are already in randomized Phase II studies in some indications. So in addition, we thought the MRGPRX4 biology was very intriguing, and I'll talk about that -- those 2 in a minute separate. So MRGPRX2 is a target expressed on mast cells. There's multiple ligands, including Substance P and others that have a very important role in activation of mast cells. But the interesting thing is, specifically in mast cells in the skin and connective tissue. So not only these cell-restricted, but it's tissue-restricted, which we think makes it ideal for a range of indications here. There are 3 ongoing studies with MRGPRX2. The name is EP262, it is a molecule number. And they will all 3 give us data in the first quarter 2025. There's a Chronic Spontaneous Urticaria study going on. It's a double-blind randomized study that will show up with 2 different dose levels. There is a Chronic Inducible Urticaria study in patients with both dermographism and cold-induced urticaria, that's an open-label study. And there's an atopic dermatitis study going on, again, randomized double blind. So obviously, the double blind trials, the data are not available. Based on the biology and the validation that was done first by the Escient group and then by us, we obviously are confident in those studies. And then on MRGPRX4, which is a receptor that is stimulated by bile acids and bile salts that we believe could pay a very important role in patients with different type of cholestasis has been tested in a randomized double-blind study in patients with primary sclerosing cholangitis and primary biliary cirrhosis, we will have results for that as well in the first quarter. So relative near term, about 6, 7 months away or so, maybe less, we'll have proof-of-concept on 4 different indications with those programs.

Understood. That's helpful. I guess on IAI broadly, I mean given what you have going on right now with indication expansion for Opzelura, development of povorcitinib, the Escient assets, do you feel like the IAI franchise is now more of -- in more of an execution mode? Or do you think there's still more kind of earlier-stage programs that could be coming through into the pipeline over the next year?

No, great question. Look, we are committed to IAI. I think people sometimes question that earlier in the year, we had Opzelura and Povo and not a lot less was visible with the Escient acquisition, which we believe emphasize our commitment to it. And we do have discovery programs and inflammation autoimmunity. We don't disclose programs pre-IND, but we are doing additional work in this space. So we are committed to as a really important pillar of our long-term strategy, and we'll continue to advance medicines in the clinic in this space.

Got it. Okay. I wanted to pivot now to a near-term data readout you had that you mentioned with your most recent earnings update, the CDK2 inhibitor. You have data updated ESMO coming up. The first question there, how has this molecule been designed to be differentiated versus other CDK2 agents in this space?

Yes. I think the key for a good CDK2 inhibitor is you always want to put in drug and a drug that has good pharmacology absorption, good pharmaceutical properties. So that's obviously a given. But the key for a good CDK2 inhibitor is selectivity versus CDK1, right? That CDK1 in this case gives you toxicity. You want to be as selective as possible. And when you look side by side of publicly available data, I think our team did a really, really good job designing a very selective CDK2 inhibitor. Then you won relatively the variability from patient to patient and intrapatient to be relatively small because otherwise, you will hit occasional CDK1. And a little bit is okay, but if you want to minimize that as much as possible. So consistent pharmacology, potency and selectivity. We think we achieved those with this molecule. So that's why we advanced it as quickly as possible. It has been in the clinic for quite some time, but we've treated now a range of patients at different dose levels and different schedules, and we'll talk about the data literally a week from tomorrow at ESMO. So we're excited about the investor event that we will have next Saturday night, where we'll show the data. Just to remind everyone, the update will be focused on ovarian cancer and one more tumor type, which is now breast cancer, which we haven't talked about, we'll talk about it next Saturday. But initially, we're not going to talk about breast cancer. We have treated patients with breast cancer. We consider that for us a secondary priority based on the competitive landscape in the breast cancer space vis-a-vis the Pfizer program.

Great. Understood. In the couple of minutes we have left, maybe you can talk more broadly about the business. I think one common investor question is what can -- which programs within Incyte's pipeline are most likely to help kind of offset dollar for dollar? The impact of the LOE that could occur in the late 2020s, early 2030s, from your perspective, what are the key programs that you think people should keep in mind to kind of get confidence that that's going to be a manageable impact of the business?

Look, I think I would divide it in very near term -- near, medium term and longer term, right? I mean -- so I don't know if everybody is following the story recently, as Christiana summarized it, we have a new label for Reti, which we think it's a meaningful opportunity, potentially a new label for Tafa, which we think it's a meaningful opportunity. And the launch of axatilimab, which even initially in chronic graft-versus-host disease, even in a later line, it's a meaningful opportunity. You combine those 3, and you start to get to a reasonable number there in terms of near-term revenue improvement. In the medium term, I think Povo is very important for us, obviously. We're going to have the first pivotal data with povorcitinib in hidradenitis suppurativa in the first quarter '25 and then 2 proof-of-concepts later in the year and then data in the other indications, PN, Vitiligo later on in '26, '27. So Povo is an important part of the near-term strategy, medium-term strategy. Longer term, that's where the really novel pipeline starts to come more into play: V617F, mutant-CALR, CDK2, KRAS G12D, which we think we have a competitive program; and a TGF-beta receptor 2 by PD-1 program, which is advancing well in the clinic. Obviously, we just talked about X2 and X4, the Escient acquisition. So the novel pipeline starts to come more into play a little bit later. I think in the near term, you have these new labels and launches in the near medium term, Povo as well as potentially CDK2 and then the rest of the pipeline. And obviously, continued execution on the Opzelura launch and the Jakafi launch are really important.

Got it. And Christiana, how important is BD at this point for kind of helping to further kind of diversify the pipeline stream?

So as you heard from Pablo, we have a pretty diversified and full pipeline right now. The Escient acquisition was a great, brought great addition to the IAI pipeline. It checked all the boxes in terms of the criteria that we had set for BD programs that are best-in-class, could have a high impact, are in areas where we have knowledge and expertise, and we can help with the further development of those programs, and can contribute in the '28-, '29-plus time frame when we start having the impact of the Jakafi LOE in '29 and beyond and also are at a valuation where there is significant upside for us to create. So it checked all of those boxes and it was a great addition to the portfolio. But now we're looking at the portfolio that is pretty full and we like how it has shaped up. We feel very good about the potential impact that it would have. And that's why we also went ahead and executed the $2 billion share repurchase that allowed us to acquire close to 15% of our shares outstanding because we like what we have currently in the pipeline and because we see a very big disconnect between the value we've seen the company better is where we have been trading. So right now, we don't see a need to actively bring on additional assets. At the same time, we can opportunistically bring in assets, if we see something that we like and where we feel that we can create significant value. We still have a strong balance sheet. We have $1.5 billion of cash as of the end of Q2. We don't have any debt, so that gives us additional firepower to be able to bring in additional assets again, if we see something that we like and it's more opportunistic versus actively looking to add right now in the top line.

Understood. Great. And I think that's a great point to close out on, and we're out of time. So thank you both for joining us. Really appreciate it. Thank you, everyone, for listening in.

Thank you. See you.

Thank you.

Appreciate it.