Incyte Corporation (INCY) Earnings Call Transcript & Summary

Welcome to the Bank of America Healthcare Conference. I'm Tazeen Ahmad. I'm one of the senior SMID biotech analysts at the firm. It's my pleasure to have with us our next presenting company, 2 members from the Incyte management team. Thanks guys for flying over to the West Coast. Hopefully, you didn't have to fly through Newark. So speaking for Incyte, we've got Pablo Cagnoni as well as Christiana Stamoulis, President of R&D, Head of R&D as well as Chief Financial Officer, respectfully. So I will turn the floor over to both of you to -- before you talk about Incyte in general, we wanted to talk about some macro questions, if I could.

Go ahead.

So maybe let's talk about the most recent update, which was the executive order that was announced yesterday morning. We've written about it. We'd like to hear your thoughts as well in terms of what do you think it actually means at the end of the day? And specifically, what do you think the impact to Incyte could be?

So I saw your note, and I would agree with it. There is no detail in the executive order. So it's very hard to comment on what the impact could be. There is no definition of what the most preferred nation pricing would be, and there is no information as to the scope, whether it would be Part B or Part D. So I can't really comment on what would be the impact. Having said that, a couple of things that is important to note is, first of all, Incyte commercializes Jakafi only in the U.S. We set price in the U.S. and ex U.S. is Novartis that commercializes the product. We have nothing to do with the pricing there. The second is that for Opzelura and in general for dermatology. The majority of patients for indication of Opzelura, over 85% are on commercial plans. Medicare has no role when it comes down to Opzelura. And then when you look at the pipeline, the pipeline currently, of course, is not commercialized in any market. So that gives us the flexibility based on what, how the most preferred nation pricing will end up or the framework will end up being to adjust the strategy accordingly, the commercialization strategy.

In general, some of our companies have been saying that they like to price their products in a tight range. Based on what you think that interpretation is, would you expect that if you were in that type of position in the future, you would kind of decide to either not sell product in a particular country if the pricing ended up being negatively impactful to the overall business? Or would you, from the get-go, try to find a price point that you think would be more in line with not necessarily premium pricing, but pricing that would be generally accepted, if you know the type of question that I'm asking?

Yes. I think that's where I was going with being able to adjust the strategy. We'll have flexibility to take into consideration all these alternative approaches.

Okay. And then on the question of tariffs, can you remind us what Incyte's position is on that?

So we expect tariffs to have very limited, if not at all, impact for Incyte. Jakafi is manufactured in the U.S. And when you look at the rest of the portfolio, we have been pursuing a dual sourcing strategy where we have manufacturing in both the U.S. as well as in Europe, and that allows us to move the manufacturing of each of the programs in the portfolio based on the market. So we could manufacture in the U.S. for the U.S. market, and we could manufacture in Europe for the ex U.S. market.

And in terms of where does your IP reside, it's going to become a moot point for Jakafi. But can you just talk to us about products that are currently in development, where their IP is?

It's in the U.S.

All of it?

For the U.S. market, yes.

Okay. So there would be no transfer pricing need whatsoever?

Not for the U.S. market, yes.

Okay. So last question is on FDA interactions. So over the last 8 weeks or so, to the extent that you had to have interactions with the agency, has anything noticeably or notably changed, whether it be delays to meetings, time lines, the type of meetings that you're having, the topics that are coming up, et cetera?

No. So far -- so we have 3 PDUFA dates coming up, right? We have reti, tafa and the Opzelura pediatric AD. And our interactions with FDA have been absolutely normal. We have not seen any delays or any problems so far. So we obviously follow the headlines. I think CBER has been so far relatively or maybe fully insulated, at least at the senior level. I think it's been a little bit less turmoil than in CBER. We hope that will continue. Fingers crossed. So far, we've seen no delays.

Okay. Perfect. So now let's talk about specifics to the company. We'll start off with Jakafi just because I think it's still topical for folks. This past quarter, you talked about Part D redesign being a factor. And -- but despite that, I think probably some people were pleasantly surprised. So can you talk about why this Part D redesign was particularly complicated for this quarter? And should we expect negotiations every year to, on a go-forward basis, become more involved as opposed to less?

So under the Part D resign, we -- pharmaceutical companies no longer cover the donut hole, which was what we were doing in the prior years. And we had that big impact to the gross-to-net discount in the first -- primarily in the first quarter of the year. And instead, we participate in the initial and catastrophic phase. Jakafi has got qualified for the small biotech exception. And as a result, the participation in '25 in this initial and catastrophic phases is much smaller than other pharmaceutical products that don't have that exception. For us, this year is 1%. It will grow to 2% next year and gradually grow to the same level as others over time. So this year, instead of having the participation in the -- covering the donut hole, we had that 1% participation. And that's the benefit from the Part D redesign that you saw in the numbers. As we shared, Jakafi grew 24% year-over-year, 10%, the biggest growth driver was demand. 7% was less destocking versus what we saw in Q1 of '24. And the rest was because of net price, and the majority of that net price benefit came from the Part D redesign. And it was partially offset by the continuous growth that we see in 340B. So that was compared now to '24 Q1. Going forward, as a result of not having that big impact on gross to net at the beginning of the year because of the donut hole, you would expect gross to net in the subsequent quarters to be pretty much in line with what you saw in Q1. So you won't see that big movement between Q1 and Q2 that you saw in the prior years. And as a result, you would see a more gradual increase in the quarter-over-quarter growth driven exclusively by demand.

Okay. Can you talk about Jakafi XR and how it's important for life cycle management?

So XR, first of all, we expect to file for approval in -- by the end of the year and expect approval mid of '26. That now gives us 2.5 years before the patent expiry to get patients on XR. We would expect that primarily new patients who could benefit from the advantages of -- compliance advantages of once a day will get on Jakafi XR. And so by the time of the patent expiry, the majority of the existing patients are likely to be on XR. At that point, it would be hard to get a patient -- an existing patient who is on a once-a-day therapy move to a generic twice a day. So we would expect that most of those patients would continue on a once a day for the duration of therapy and then new patients will be the ones getting on generics. And when you think about the duration of therapy of those patients, MF patients stay on therapy on average for 2 years and PV patients for close to 4 years. So that means that the revenue coming from Jakafi XR will continue for a longer period of time, and that will change the revenue erosion that you would otherwise expect.

Okay. And then how should we be thinking about between now and LOE for Jakafi, the revenue expectation? So what's the upside in continuing to invest in Jakafi is a question that we get just because your LOE is coming to an end. Why is that not the right question to be asked?

So we -- Jakafi is a very important drug and position that we have in our commercial portfolio. It generates significant cash flow, and that cash flow allows us to invest heavily in the next set of growth drivers for the company.

Yes. So one of those is, I think, Opzelura. So can you talk about the ramp so far that you've seen? And can you talk about where in the launch trajectory it is for both AD as well as vitiligo?

So Opzelura is continuing to grow very nicely across both indications. You saw the numbers for Q1. It represented a 38% year-over-year growth. The growth was really driven by demand, both in the U.S. across both indications as well as increasing contribution from Europe. And you saw the guidance that we have provided for Opzelura, putting revenues, net sales for the year at $630 million to $670 million. So it's becoming a sizable product. In the U.S. in AD, we continue to see nice growth as Opzelura is really differentiated by the very rapid itch reduction that it can provide, which is obviously very important for atopic dermatitis patients. And vitiligo, we see the growth be driven by the fact that there are no other therapies available for repigmentation. Opzelura has been the first and still only one. And so we are continuing to work on getting new patients on therapy. But also in the case of vitiligo, the other growth driver is the improvement in adherence. So as we have discussed in the past, there is still quite some work to be done on making sure that patients that get on therapy stay on therapy and appropriately use the cream twice a day and for a long period of time so that they can see the desired results.

So is it correct to say that most of your revenues right now are coming from AD?

No. The split is 55-45 in the U.S. And of course, ex U.S. is all vitiligo.

So in terms of compliance then, if it's pretty similar in terms of the split, is it that patients are coming off therapy but choosing to go back on after short holidays? Or is it just the volume of new patients that's coming in allowing the split to be close together?

So for vitiligo, you have both new patients as well as patients that start staying longer on therapies. We have been working on adherence. Already, we are seeing patients that refill their prescription accounting for more than 70%. So that has been improving. In the past, we were seeing a great number of patients actually getting one script and then stopping. So that has been improving. And now we are working on making sure that they apply the cream appropriately, and that will translate into a higher number of tubes per patient per year. So that's what has been driving vitiligo in the U.S.

So some of the feedback that we've gotten from physicians consistently is that they really do like Opzelura, especially for AD to the point where the number of tubes that a patient is taking is lower than what we had originally modeled because the itch, which is like predominant for why people go on it, gets resolved pretty quickly. So that's a good problem to have, I think, but also how do you think about continuing to grow revenue? And is there a certain type of patient that you'd be targeting going forward?

So there is a lot of room to continue to grow revenue. You still have -- Opzelura where it plays is after usually patients who have tried TCIs and TCSs and have not been well controlled and then they move to a topical. And to your point, itch has been or itch reduction and the rapid onset of that has been a very big differentiation for Opzelura. There are still a very big percent of patients that are on TCIs and TCSs so that there is a very big market to continue to tap. And in addition to that, you have the pediatric patient population that we'll be looking to hopefully start addressing beginning the second half of the year.

No. I -- just to complement that, look, if you take adult and pediatrics, there's more than 5 million people with AD in this country alone. And that's a lot of people to think that we're anywhere near penetrating that market. It's just not to case.

It'll be in a crowded market, though, for AD.

What's that?

Fairly crowded market, though, for AD.

That's my point. And so in a crowded market, even though it's so large, I'd rather have the best drug, at least the best topical. And that's what we're hearing consistently, the same thing you heard. Opzelura is the best topical when it comes to itch improvement and resolution in patients with atopic dermatitis. That's pretty clear. So yes, it's a constant battle for those patients, but we have what we think is the best topical and the market size and volume of patients is very, very large. In vitiligo, again, there's 1.5 million people with vitiligo. We're nowhere near impact in that market. In vitiligo, the challenge, as Christiana said, is a little bit different because both we need new patients. But refills are key and having -- convincing patients to be patient and stay on drug to see the repigmentation that we see in clinical trials is the bigger challenge in vitiligo.

Okay. And then as we think about other indications, how are you now thinking about HS given that you've also had povor?

Yes. Going back to what the treaters are telling us, I mean, our team spent a lot of time at AAD interacting with the community, and we have some former KOLs at Incyte. There is extraordinary amount of interest in Opzelura for HS. I know everybody is talking about systemics and a lot of our attention has been on povo for the right reasons. We have pivotal data and biologics are coming, et cetera. But when you talk to dermatologists and people that see a lot of patients with HS that have, in addition to whatever systemic therapy you want, having a topical agent that leads to rapid improvement in the signs and symptoms of the disease, it's something there's a lot of interest. So we are moving as quickly as we can. We'll give an update at some point in the future where the status is, but we fully intend to proceed with a pivotal trial for Opzelura in mild-to-moderate HS. We think that's an important complement to povo as we try to impact the HS market overall.

Yes. So maybe let's move on to povor. I think some people maybe misinterpreted what the data actually showed, your pivotal data.

Okay. It's 2 positive studies.

Can you talk about -- just give us a quick summary of what you showed and how it met your expectations?

Look, we conducted 2 pivotal Phase III trials. Both studies were positive at both doses. So I think that's sort of the headline there. Everybody can talk about data they promised to have. We have 2 positive studies at both dose levels. The primary endpoint was what it was. It was HiSCR at week 12. We can't change that obviously. So people are hoping or we maybe are hoping that would have been a later time point or HiSCR75 which was also positive, by the way, but it was HiSCR at week 12. One of the things that we've been saying all along, and I think it was confirmed in the 2 Phase III trials about povo is the rapid and substantial impact on pain. And pain is the #1 symptom patients with HS complain about. Obviously, we like to count lesions and come up with endpoints to get these medicines approved, but what patients complain about is pain. And the data we've seen with povo and pain is pretty striking. When you compare side-by-side with Phase II RINVOQ, pain data is much, much stronger. So we think that's going to be a key differentiator. Now because the data was at week 12, what we tried to do at the last earnings call was give you an update on longer follow-up. Obviously, that's not placebo-controlled data. We understand the caveats there. But when you take the placebo patients that crossed over to povo, and you forget denominators, let's forget percentages for a while. Denominators change because, obviously, the patients are progressing. The number of responders doubled. So you take patients on placebo, you cross them over to 45 or 75. And in basically 6 weeks, from week 12 to 18, the number -- absolute number of responders doubled. We think that is another piece of evidence of the very rapid and strong effect that povo has in HS. We appreciate this is going to be a competitive market, both in biologics and orals. We are a year ahead of our oral competitor. We think we're going to have stronger pain data. And let's remember, they're running a study only in biologically exposed. So that's what their label is likely to be. Our study included 2/3 biologic-naïve, 1/3 biologic exposed. We showed efficacy in both groups. In fact, in biologic exposed, the efficacy was even better. So we think we're likely to have a broader label. So a broader label, we're ahead and we have a very strong impact on pain. We think that's a good competitive position to be in.

So when you say broader label, is your view that this could be used frontline?

Yes. As we, Herve highlighted in the last earnings call, there's a group of patients that you can quantify and we've done a number of interviews, ranges probably between 10% and 15% patients that prefer an oral to an injectable. Now right now, that's a hypothetical question. Data will drive the decision. But there is a group of patients for sure that when you offer them an oral with rapid improvement and significant improvement in pain as well as HiSCR, I think they will opt for an oral. That's about 10% to 15%. Then there's a group of patients that are going to sequence through biologics. And the way we see the market evolving is it's unlikely that patients and physicians will opt to sequence 1 IL-17 after another, after another. That is unlikely to happen. And so when patients fail after an IL-17 and they will, this is an incurable disease, everybody will progress. We think that the best option will be change mechanism. And we think data will hopefully show that over time that we have the best JAK1 inhibitor and the best oral. So that's the way we see the competitive market evolve over the next several years.

Okay. So what are the next steps as far as povor is concerned?

For HS, we need to follow the patients, at least a significant percentage of them for 52 weeks is the FDA -- because it's the first approval for povo. So we need 52-week safety data in a percentage of patients, whether it's 100% or 75% of them is something we need to discuss with the agency. So we'll file this as soon as possible. Right now, we're guiding to a potential and we'll request priority review, which we think we'll get is the first oral approved in HS. So we think an approval could come, if everything goes well, late 2026, early 2027.

Okay. And would you need to make any modifications to your current sales force in order to accommodate an HS launch?

So there is a very big overlap. And so we should be able to fully leverage the existing sales force. There may be some additions to that, but to rightsize it for the number of programs and indications in the portfolio, but we should be fully able to leverage the infrastructure we have in place.

So maybe I wanted to ask a broad question. You've got a lot going on in the pipeline. But if you had to pick a program that you're most excited about, I'll ask each of you. Let's start with Pablo. What program would you find most exciting?

I think the most exciting program in our pipeline, and there are several. I love all our children, but I think the mutant CALR antibody program has to be at the top of your list. And the reason is we have a broad pipeline. We're trying to diversify our portfolio to some extent, while we retain a certain amount of focus. We can't do everything. But we are the MPN company. We are the company that has redefined the standard of care for MF and PV. And what we're planning to do and the mutant CALR antibody program is the first step, we're planning to that be the case for the next 15 to 20 years with a sequence of development candidates. Mutant CALR is the first one. V617 is a little bit behind, but we'll have data this year. And there will be others that we haven't disclosed yet. Our intention is to continue to dominate the myeloproliferative neoplasm space and mutant CALR antibody in ET and MF is the first step in that direction. So that's a program that we're all very excited about.

Would RUX still play a role going forward with these molecules?

It's possible, right? I mean RUX LOE is obviously at the end of '28. So after -- and you asked about investment in that product, development investor right now is nearly 0. I mean there's a little bit of medical affairs effort. The rest is commercial. Whether the development path for the mutant CALR antibody in MF is in combination with RUX, we'll discuss when we show the data, but that's a certain possibility. RUX improves survival in MF. And one cannot forget that as you design the next-generation treatment regimen for patients with MF, may very well involve RUX in some form or another. We'll talk more when we have the data, which will happen this year.

And would you present it as a press release first? Or would it be at a medical meeting or an earnings call?

What's that?

Or in an earnings call?

Yes. I don't think that's the kind that they drop on an earnings call. I think it's going to almost certainly going to be a scientific meeting of some kind, will decide.

And would it be just a single meeting? Or are there opportunities for multiple presentation?

We haven't made that decision. But the one promise we made and we will fulfill as you will have data mutant CALR in ET and MF this year, and you'll have V617F data this year.

Okay. And then Christiana, what's your -- you don't have to pick CALR. Feel free to talk one.

I was going to say CALR, but -- I mean, for all the reasons that Pablo discussed. So if you were to ask me what's the other one, povo. Povo is a drug that we are developing across already 5 indications and more to come. We have validation already in 4 out of those 5. Phase III data in HS with 2 other indications already in Phase III. This is a multibillion-dollar drug. And so we believe that it will play a very important role in the overall portfolio and for Incyte.

Do you think either of these could fill the role of Jakafi in terms of revenues single-handedly?

Let me offer this thought. I'm not going to go there. Look, I think that, first of all, our goal is not just to replace Jakafi. Our goal is to replace Jakafi and show double-digit growth after Jakafi [ goes on that ]. That's the goal. Just replacing Jakafi is not the point really. If you take ET, the percentage of ET patients are CALR mutated. That's the same size as all MF. And in MF, we know the duration of therapy. Jakafi is about 20 to 24 months. So if all of a sudden, we have an ET drug that gets used in about 25% of the patients with duration of therapy longer than Jakafi with something that is a biologic that is priced for 2027, whenever it launches prices, I mean, that's a big step in that direction. Then you take mutant CALR in MF. And then you take 617F in PV, 9.5% of the patients with PV are 617F mutated. Just by taking the MPN portfolio, you can start to add those numbers. And then you throw the multibillion-dollar promise that Christiana made about povo, I think you make the numbers work pretty easily actually in terms of replacing Jakafi and showing growth after 2028.

Okay. So Christiana, you've promised, so [ we have to ], we got to get it. Okay. We're out of time now. So thanks guys for stopping by and listening to the fireside. And of course, Pablo and Christiana, thank you for chatting with me this afternoon.

Thank you. Thank you.