Incyte Corporation (INCY) Earnings Call Transcript & Summary

All right, everyone. I think we'll get started here with our next fireside this morning. My name is Derek Archila. I'm one of the biotech analysts here at Wells. Very excited to have Incyte with us for the next fireside from the company. Bill Meury, President and CEO, only been in the seat for 60 days, I think you said.

About that.

That's great. And then we got Pablo Cagnoni, President and Head of Research and Development. So gentlemen, thanks so much and looking forward to the discussion here.

Good to be here. Thank you.

So Bill, maybe in the last 60 days, you can kind of recap your view of the business and kind of what got you excited to join Incyte at this time.

Yes. I'll start with the second part of that question. I've been asked it often. Pablo has heard me say this a few times. I think there's 3 threshold questions anyone should ask whether you're investing in a company or you're buying a company or in my case, joining as the CEO. The first one is, is there a potential for meaningful product flow at Incyte? And from the outside looking in, the answer to that question was yes, both in terms of the marketed products, ex Jakafi as well as the early and late-stage pipeline. Second is the company operating in what I would call structurally attractive markets, broadly speaking, oncology and immunology, more narrowly speaking, MPNs and immune-mediated skin conditions. Answer to that question is yes. And then the financial profile of the company in the near to medium term is very strong in terms of cash flow and a growing balance sheet. And that's why I joined. And I think there's the potential to really build this company essentially for the next decade. We have 2 to 3 years where we are going to put together or configure a product line, assuming success that's got long-term durable revenue, earnings and cash flow. I have been impressed in the first 60 days with the depth of scientific expertise in the company. And I often describe it as top 10 pharma quality scientists and drug developers in an organization that doesn't have the complexity and bureaucracy of a top 10 company. I think Pablo's management team is exceptional, both in terms of our discovery head and the biologists and chemists working for him and the translational medicine people. Then we have an early and late-stage drug development group that's headed by 2 really exceptional people. And so I think it's been a good decision. And we just have to convert science into business results.

Yes. Well, let's talk about that. So I mean, obviously, one of the core business drivers today and ideally in the future is kind of in MPN. So maybe talk about, obviously, what's ahead of you in terms of the Jakafi LOE, but not only how do you plan to replace but also grow through that with some of the pipeline, and we can get into the nuances of the pipeline. But again, from a big picture view, like what's the plan?

Yes. And I think what you just said is important. There's a couple of ways to deal with this kind of a transition. I try to avoid the word cliff. And you can invest through it.and launch products through it, which is the preferred way. And then there's sort of the other way, which is other companies have dealt with, which is restructuring. Now time is of the essence, but we have time here, and I think the potential for product flow. So that's how we solve the problem. As it relates to the transition, I'll just cover off on XR, make a couple of comments about all the targeted therapies that we're developing, and I may turn it over to Pablo to comment on 989, which is going to be the first mover in our MPN strategy. We'll launch Jakafi XR in the middle of 2026. And that's going to preserve some residual or that's going to create a residual revenue stream on Jakafi as we go through the '29, '30 period. XR conversions are pretty typical. They can usually land in, I'll call it, broadly speaking, a 10% to 30% range, you can convert. Let's take the midpoint, 20% if we're successful with the one today. There are certainly analogs out there where it could be higher, but I'd rather be very sober about what you can achieve in terms of preserving Jakafi revenues. And the value of the company is not going to trade on XR. It's going to trade on the therapies that we're developing next generation essentially. What we're attempting to do with MPNs broadly is trigger a changing of the guard from basically, the standard of care is either Jakafi, a pathway approach or a cytoreductive agent, if you're talking about ET with hydroxyurea to a series of targeted therapies, which, to some extent, would be considered the holy grail in MPNs. And I think companies that are successful like Incyte in terms of their size, stage and scale are companies that have hyperfocus in specialized areas that are very high value. And if we can create a new standard of care for MF, PV and ET, then this company is going to be -- is really going to thrive as we get into the 2030s. We have 5 different targeted therapies under development at various stages, okay? So very different than what's currently the standard of care in MPNs. We have 989, a monoclonal antibody targeting mCALR. We have 617F, which is a small molecule also targeted. We, of course, have a BET inhibitor, a bispecific, and we have an undisclosed discovery compound that I think is interesting. Not all of them are going to make it. We don't need all of them to make it. But if 2 or 3 of those make it, we could sort of transform how hematology is dealing with this particular -- these particular conditions. 989, we presented data in Europe, as you know. I guess it was in June, right, Pablo? At the end of the year, there will be more data, more mature data on ET and then data on myelofibrosis. I find the data very encouraging. I'm going to let Pablo just talk a little bit about what's going to be available.

So for 989, as you know, and we presented a significant first data set at the EHA meeting in June, so just a couple of months ago. And that was focused on ET, essential thrombocythemia. We had a good number of patients. And I think the data clearly demonstrated that 989 -- the fundamental thesis behind 989 was that by interfering the interaction between the mutated color protein and the TPOR receptor, it would reduce or eliminate the size of the malignant clone in these diseases and allow the benign the wild-type clone to expand and correct all the signs and symptoms of these diseases. So what we showed in ET was rapid normalization of platelets, which is exactly what you want to see, together with a very well-tolerated safety profile. Almost all the patients had continued on therapy at the time. And we saw evidence of efficacy across the spectrum of patients with ET, both type 1 and non-type 1 mutations. So I think that set the stage for what we guided to at the EHA to initiate pivotal trials in ET as early as possible in 2026. And that's still the plan today. We are in the process of having regulatory conversations with the FDA, and we'll provide updates over time, but that continues to be the plan. As we promised at the time before the end of this year, we'll have data in patients with myelofibrosis, both as a single agent and in combination with Jakafi. And the reason for that is, as you all know, Jakafi is approved in patients with intermediate high-risk MF and been in the market for a long time and provides significant benefit to these patients, both intestinal spleen reduction symptoms and a survival benefit over time. Now for all the positives Jakafi, it is an imperfect drug. It has some side effects in some patients because of their hemoglobin may or may not be eligible for it. So we think the approach here has to take 2 tacks, one single agent, and we need to see single-agent activity. Particularly, we need single agent activity in conventional endpoints, symptoms, spleen and anemia as well as what we believe tell the true story for 989, which is reduction of the allele burden. In other words, reduction in the size of malignant clone. And when you look at the bone marrow reduction, in megakaryocyte hyperplasia, in other words, reducing the number of color positive megakaryocytes in the bone marrow of this patient. That tells you that you're really reducing the burden of the disease. So we'll have single-agent data. We'll have combination. We'll discuss the results at the time. But we continue to be super excited about this program. And we think 2026 will see it. It will be a year where you're going to see a lot of flow in terms of what's happening with the 989 program.

Got it. So a lot of questions here. So first, maybe just on ET. Can you kind of frame us -- frame for us the opportunity there in terms of what you think the opportunity looks like? I mean, I know some folks will say it's an indolent disease, but where do you think the opportunity in the patient set is there?

Yes. I think it's a good question. If you surveyed the hematologists, they'll make 2 comments when they hear it's an indolent condition. You've heard me say this, Derek. First, it's indolent, but not benign. Second, it's slow moving, but it can still kill you, right? And I think the way the hematology community looks at it is they bifurcate the population. There's low-risk patients where a watch-and-wait strategy and low-dose aspirin may be sufficient. But there's at least half that market that either they're younger and the clinical course of the disease is relevant because they can transform, even though that risk is low, that consequence is catastrophic or patients who are at high risk, and their platelet counts aren't under control. And if you look at the market, you probably have -- you have a $5 billion ET market. That's what it is. And I'd say at least half of that, a targeted therapy like 989 is going to be relevant. Now do we get all of that? Do we get most of that? Jakafi's penetration in MF, it's about 70%, right? And so I think that they're using a treatment today, hydroxyurea that was invented in 1967. And you can ask any hematologist, they'll say, it's fine, but it's not the best that we can do. And so we're going to be able to capture utilization in that portion of the market where they're either high risk or they're actually worried about the long-term consequences of ET. Hematologists will often say, hey, this is like a ticking time bomb. And so I think it's important to remember, it is cancer, and you could sort of mischaracterize this by talking about it as an indolent condition, although that is a common theme. And I think for a portion of the population, that may be true. There is a market there, and it looks like we have a drug, and it will be an important part of sort of the potential of 989.

Got you. And then maybe this one's for Pablo in terms of like what we'll learn at the update later this year. I guess, how are you already kind of thinking about pivotal trial design in ET? And is it kind of already set or you need to kind of wait additional data before really taking the plunge on the design?

Yes. I -- look, I think the data we showed at the EHA should have convinced everyone that 989 is a drug in ET. I hope so. And if not, see me outside, we can talk about it. But I think that it's clear that this drug works in ET. So then what are the potential design? And ET is pretty straightforward, right? In second line, there's a -- there are certain drugs approved, none of which works very well. So it's a pretty straightforward design of 989 versus some kind of control arm, which could include a basket of different options. The endpoints that have been discussed in the past and what some of our competitors are already doing are a complete hematologic response, a durable complete hematologic response. So what we would like to do is have a conversation with FDA along those lines. 989 is a novel mechanism. It does things no other drug has done before in the sense of really eliminate the malignant clone in this disease as opposed to just killing platelets and normalizing the platelet count, which is what hydroxyurea does or anagrelide. So can we have a conversation with the agency about incorporating some novel endpoints in the primary endpoint definition? And that would be some version of megakaryocyte hyperplasia reduction or VAF reduction. I can't guarantee you that, that's going to work, but we're going to try because I think it matters. I think it matters to patients, I think it matters to prescribers and new drugs deserve new endpoints. And so this is a new idea. And I think that conversation needs to happen with FDA. Worst case scenario, we'll run a study with durable hematologic response, similar to what some of our competitors are doing. I still think with the data that we have in second line, it's a pretty easy path forward. First line is a little bit more complicated because hydroxyurea, at least when it comes to reduction in platelets works pretty well. It has a lot of liabilities, as Bill mentioned, tolerability, the fact that you have to constantly adjust the dose because it kills platelets, but also kills white cells. So it's a little bit -- but the reduction in platelets is real. Still, I think that if we have to fall back to durable hematologic response, that's fine or we can use the IWG definition, which includes megakaryocyte hyperplasia as part of the endpoint. So those are the lines on which we're going to discuss this. The highest priority now is the second line, first line. It's more of a conversation with the FDA, but we're going to move forward with that.

And I know the current trials use the IV version of the drug. I know I think you've talked about subcu. So maybe you can just elaborate on that.

Yes, it's a very high priority for us. We needed to have an idea of the dose. Once we did that over the first half, middle of the year, our formulation team started working on this aggressively. We're doing the best we can to accelerate this time line. You'll have a more clear update at some point in 2026. We will have a subcu formulation. I don't know the exact timing yet, but conversations both on the formulation itself are already well advanced. And we're also having conversations with potential manufacturer for a device for the subcu administration. So all this is going to be crystallized in 2026.

Like is it fair to assume the base case is that you move forward with the initial Phase III second line with IV or...

That's the base case for now.

Base case. All right. We'll stick with that. Maybe shifting to myelofibrosis. So we have the update at the end of the year, you kind of previewed that a little bit. But I guess as you start to think about the different scenarios in terms of Phase III design and development beyond that, a lot of different moving parts there. So maybe you can just walk us through how you're thinking about that with 989.

So MF is a little bit more complicated. We have a lot more experience, as you know, which is a good thing in this case because it's a little bit more complex. So again, you can go from patients post-Jakafi second -- let's call them second-line patients. It's not an ideal definition, but let's call them second-line patients. And in that context, the options are available. I would argue none of them are great. So assuming, as I think we should, that 989 will have single-agent activity on spleen, symptoms, anemia, VAF and megakaryocytes in previously treated patients, that's a pretty straightforward second-line [ setting ]. So that's one option. The other end of the spectrum, which I find intriguing, but I don't have a lot of detail to give you today is Jakafi is approved in intermediate high-risk patients with MF. It's not in low-risk patients. We do know these patients transform over time, and there's good real-world data for this. Can we run a study there? I think that's a conversation we need to have internally and then with FDA because it's obviously a population with much lower risk of disease. But assuming 989 continues to have the excellent safety profile we've seen so far, I think there's an argument to be made that, that's a population that could benefit the most and so we should look at that. And they have the big price today, at least the big price, which is the middle with Jakafi is approved. And intermediate high-risk patients, as all of you know, rapid improvement of symptoms with Jakafi, has been reductions in the about 35% of patients as you have [ 35 ] but significant progression of anemia when you put patients on Jakafi, thrombocytopenia can be as well a problem. And let's face it, every single patient with MF today progresses and dies of the disease. They progress to either fibrotic state when the bone marrow is basically spent or they progress to acute leukemia, but they do progress. Jakafi doesn't cure patients, doesn't even transform MF into a chronic disease. It provides enormous benefit to patients as we know. So the combination with Jakafi is key part of the story. We'll have some of that data later this year. And that's the beginning of the journey to figure out how to design the study in naive patients in combination with Jakafi. I could make it very simple and say Jakafi vs Jakafi 989, sure. What are the endpoints? Well, as I mentioned for ET, a conversation needs to be had with the FDA. We think this drug does unique things that even Jakafi doesn't do. How can we incorporate those at least as co-primary or part of the composite endpoint in MF? And that conversation will take place over the next few months.

Got it. So a couple of questions. So one, just in terms of the safety of the combo, like how do you think about that in terms of overlapping tox, if there's any? And then I have another question after that.