Incyte Corporation (INCY) Earnings Call Transcript & Summary

Hi. Welcome, everyone, to this session of the Morgan Stanley Global Healthcare Conference. We're thrilled to have the Incyte team with us represented by Bill and Dr. Steven Stein. I'm Judah Frommer, one of the mid-cap biotech analysts here. Before we get started, let me just read a quick 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.

All right. With that out of the way, Bill, so you recently joined as CEO. Maybe help us with a high-level view of what drew you to Incyte, how you've enjoyed your time since joining and whether there's a tangible change in priorities, either commercial or on the R&D side that you'd call out.

Yes. There were 3 threshold questions that I asked and answered. I think any CEO would do that. The first one is, does Incyte have the potential for meaningful product flow? And the answer to that question was yes. We have marketed products and a group of early and late-stage products that I think have significant potential. Not all of them are going to work, but we don't need all of them to work to build the business into the next decade. That was number one. Second threshold question is, are they operating in structurally attractive markets? And I think broadly speaking, oncology, immunology are 2 of the most structurally attractive markets in the industry. More narrowly speaking, we're focused on hematology, oncology and then in immunology, specifically immune-mediated skin conditions. And so you're not walking into a situation where the most important strategic decision you have to make, which is where to play, has to change. Our focus will continue to be in those areas. I think Incyte has differentiated knowledge and capabilities in those areas and has an asymmetrical advantage. And then third, from a financial standpoint, there's strong revenue, earnings and cash flow over the next several years. We're going to go through a transition. Our balance sheet continues to grow, and we'll use that appropriately if we think it can complement our internal R&D. And so far, the first 60 days has been very impressed with the depth of scientific expertise in the company. It's got a great team-oriented environment. And our focus right now is converting science into cash flow.

Okay. No, that makes a lot of sense. Exciting times. So given the expertise in MPNs, I figured we'd start there. Can you describe the opportunity across your products in the overall market across MF, PV and ET? I know you gave some numbers on ET at EHA, but some color on the overall market would be helpful.

Yes. I mean we -- just stepping back for a minute at Incyte, we have 5 targeted therapies in development. And today, there is no targeted therapy for MF, PV or ET. And so if we're successful here, we can sort of trigger an innovation-based shift in this market, like you've seen in other hematological malignancies. And this is sort of mission-critical for the company. If you look at MF, ET and PV, just broadly speaking, and you look at patients that have either an mCALR mutation or we're also developing a small molecule for JAK2617F, there's about 150,000 patients. And so you can figure out based on annual cost of therapy, that becomes a market in the tens of billions of dollars. Now you don't get all of that market. But you can get 10% to 20% of that, and we could more than double Jakafi. That is this working, right? Right now, the first product through will be our monoclonal antibody targeting mCALR for myelofibrosis and ET. We'll present more data on ET in December, and we'll present our data on MF also in December. And so it will be a little bit less opaque and a little bit more clear in terms of what we're seeing in both these products. And I can tell you, there's about 30,000 patients with an mCALR mutation that suffer from MF and ET. And right now, they either have Jakafi on the MF side and on the ET side, they have hydroxyurea. And one is just blocking a pathway, Jakafi and the other is basically reducing platelet counts, but doing nothing to the disease. And so what you'll see in our data are conventional endpoints, hematological response, and you'll see also molecular response. And 989 has the potential to modify the course of the disease. And I think Steven can talk a little bit more about it if you want.

Yes, sure. I mean it depends where you want to go. But as Bill said, for -- if you look at this transition from more broad-based therapies to targeted therapies is exactly what's happened in the MPN space. If you want to just talk broadly, the mutant CALR mutation is about 25% of ET, about 35% of MF, V617F, about 50% of both those conditions, but 95% of PVR, and that's how you get to Bill's number of 150,000. So the idea is to transition to these targeted therapies, eliminate malignant clones, ameliorate the traditional endpoints, blood counts, spleen, symptoms, but also get to the molecular endpoints, VAF reduction, allele reduction, potentially sort of functional long-term disease modification. You don't want to necessarily talk about cure too early, but you get to this long-term use and stability there.

Okay. Great. So with that in mind, maybe we'll double click on 989, the mutant CALR antibody. So maybe just a little bit more, can you elaborate on the regulatory path you're envisioning for ET and MF specifically potential trial design, maybe elaborate on endpoints beyond VAF a little bit as well.

Yes, sure. It's probably a little premature to answer your question fully. But if you just take it stepwise, it's getting the right dosing schedule for each of those. We know and we showed at ER, as you alluded to, in ET, particularly type 1, we have an exquisitely sensitive drug where you get rapid normalization of platelets and then those other endpoints I spoke about. Type 2 is probably going to take a little bit of a higher dose to get there, and we knew that preclinically. Ideally, we want one dose for both, and we'll get to encompassing that data as we update the data sets, but get the dose and schedule. And then from a regulatory standpoint, they're slightly different. So in essential thrombocythemia, it's about controlling blood counts. long-term control. If you want to use the Merck-Imago LSD1, they're talking about a 52-week complete hematologic response there. The question is what's long-term control. But then the other clinical benefit piece in ET is lack of the morbidity and the chief morbidity there is thrombosis. So you can get them into a sort of composite combined endpoint. In MF to date, the field hasn't moved for 1.5 decades beyond spleen reduction, SVR35, which was an Incyte invented endpoint when RUX came along and then symptom control. And the question there is, do you need both of those, plus we've seen very intriguing anemia responses and that's a clinical benefit endpoint. If you can get people away from developing anemia and the need for transfusion, that's another established regulatory endpoint. But for both, ideally, we'd like to weave in, in discussion with the FDA an appropriate molecular endpoint. I think that will be a game changer for the drug. It will reflect what it's doing and the ways of measuring allele burden reduction, long-term allele burden reduction or megakaryocytes themselves, malignant megakaryocytes measure them going away. So for us, we would like to get to that endpoint that encompasses both the traditional clinical benefit endpoints plus molecular characterization. It's a little premature to talk about what those are right now because we have to negotiate that with regulatory agencies.

And our goal is to start Phase III, at least in ET by the middle of 2026. We're already in conversations with the FDA, and those will continue between now and then.

Okay. That makes sense. And as you said, kind of the December update is becoming more and more of a focus for investors. So I guess, are there specific or general efficacy thresholds you can point us toward for that update? And what would help you in terms of developing a plan for monotherapy versus combination?

Yes. No, it's a great question. So obviously, we've shown ET data at EHA. We'll also update the ET data set. Your question is mostly focused on the MF data set. There's sort of 3 populations to focus on there. We started with monotherapy, mostly in later-line patients because of [indiscernible] needed to be developed, but these are people who either RUX nonresponsive, RUX intolerant or RUX progressive. And the key is we need to show monotherapy activity there. So it will be the substantive part of the data set at different doses. And then we have combination work with RUX in combo, both in later-line patients and more recently, actually first line as well. So the whole spectrum of disease. And the question is there and still somewhat of an unknown question is how much do you need the combination versus not? Can you dial RUX out of the equation, use it early to control symptoms, get some spleen response and then keep the cat on maintenance. That needs to be worked out. But to the meat of your question is what are the regulatory path there. And again, they're relatively well established with standard endpoints of SVR35 and symptom control, but the anemia benefit becomes really tangible and then the molecular piece. And that's where we want to get to, and we want to show data that warrants getting into those endpoints. I think as we sort of work with regulatory agencies, we'll work out how much do we need long term in ET? Is it -- do we need the full 52 weeks? Or do we need sort of maybe potentially a shorter duration, which will certainly help shorten the study to get it across the finish line? And then what populations? So the most obvious one, I think, is second-line ET because that's an open space, potentially first-line ET versus Hydrea needs to be worked out. And then in MF, it's standard first-line MF suboptimal is a population that's well worked out. And then an intriguing population, very early days still is low-risk MF. These patients are felt to be indolent and not really develop complications. But when you look closely at those data sets, a lot of them do progress within a year or 2 in terms of markers of progression. And there may be a game to play there that's very important for patients with a mutant CALR antibody to ameliorate the low-risk population in MF. So they're all potentially in play. I'm not answering you directly. But if you add those up, it's second-line ET, potentially first-line ET and maybe 3 MF populations that need to be addressed.

Got it. And then it's early days, I think, for a fulsome answer here as well. But I guess, how are you thinking about long-term dosing strategy for ET and MF for 989, I guess, how would molecular response potentially factor into that?

Yes. Well, currently -- and you guys have seen this in terms of weekly dosing IV, the idea is also to get to a subcu, which will make it a lot more patient-friendly go home and be able to administer it. But we are going to look at different schedules, particularly you could envisage in the maintenance phase, can you go out and still hypothetical this q 2 week, q 4 week, those sort of things to make it more friendly to be worked out. The platelet in ET is such a sensitive pharmacodynamic marker that you should be able to see -- if you do space out the dosing, you should be able to see if you lose control pretty quickly from the platelet count perspective. So we'll work that out. But the idea is to look at potentially more patient and physician-friendly dosing schedules.

Okay. That makes sense. And you touched on it with potential for combo with Jakafi. But I guess maybe more holistically, how should we thinking about the XR opportunity for Jakafi maybe on its own and then, I guess, potentially in combination with 989?

Look, once-a-day Jakafi has the potential to preserve a reasonable proportion of Jakafi sales. We'll introduce it in the middle of 2026. You can look at conversion models. They can be as low as 10%, upwards of 30%, even higher. I have to be brutally realistic about the environment that we're -- the payer environment that we're in right now. Take a midpoint of that range as sort of a base case, and it could be higher and not insignificant as we go through this '28, '29 period, and we have exclusivity on XR that extends into the early 2030s. And so that will be a piece of the puzzle as we sort of build this business into the next decade.

Okay. That makes sense. Maybe just touching on 2V617F, right? So I think you mentioned in your earnings update that the program needed data for higher exposures and longer follow-up. I guess what are you looking for specifically in terms of safety? And how is that study trending overall?

Yes. As Pablo said on the earnings call, we probably somewhat underestimated the dose to get adequate inhibition. And that's why we haven't shown a substantive data set at all yet, and we actually won't be showing this year because we have to keep going on dose ranging. We're right now in the clinic at a dose that's getting us about an IC35, and that's where we should start seeing activity. So it's a design a drug, as Bill said earlier, for the V617F mutation. It's a small molecule, and we would expect it to absolutely work once you have adequate exposure, and we're only there now and then you have to see over time. The other thing with safety, as you allude to, whenever you put any new compound into humans is just make sure you do no harm. And for example, in this instance, don't wipe out the bone marrow or something like that. Obviously, you can tell from the programs ongoing that hasn't occurred. So we -- safety is not an issue at the moment. It's about getting adequate exposure to see the activity, and it's going to take a little longer than expected to get there.

Okay. That makes sense. And speaking of earnings, I think Niktimvo was a bright spot there kind of relative to consensus expectations. So beyond third-line use, how do you see label expansion progressing or earlier line opportunities evolving? What time lines are realistic for studies in those areas?

Yes, you're right. We got off to a good start. We're 2 quarters in. I think we'll have a reassuring third quarter. We have 3 programs in place, a subcu, a combination study with steroids and a combination study with Jakafi, which would move it into first line or second line. All those programs are ongoing right now. You're probably looking at end of '26, '27 when we start to produce results of subcu. We still have to design a study, talk to the FDA about whether that's a bridging study or a full study.

Okay. That makes sense. And maybe last one kind of rounding in MPNs. Any competitors out there you're watching particularly carefully. We've got certainly some development in China, which we'll talk about a little bit more later or somewhere else. This is an important engine, like you said, I think, for kind of bridging the franchise to the future.

Look, you got LSD1. We have ropeg, which is already out in the market. But I don't think there's a mutation-specific approach right now that is advanced as our 989 monoclonal antibody is or our small molecule 617. And I do think in hematology, there's intrinsic appeal to a treatment that targets in both cases, the driver mutation. And I believe there's a market both in ET, where you have to bifurcate, low-risk and high-risk patients and certainly in MF, which is a more aggressive cancer. But as long as we continue to convert these Phase I data, turn into a Phase III program, get an FDA approval, I don't see competition being a major problem.

Okay. Great. Kind of moving more broadly into oncology, tafasitamab. How are you thinking about opportunities in DLBCL and follicular lymphoma? I think on the second quarter call, you said something along the lines of FL alone could do up to $200 million by around 2028. So how are you thinking about the opportunity in DLBCL with Polivy already there frontline?

Yes. I mean the field in first-line diffuse large B-cell lymphoma didn't move forever, right? It was a very hard regimen to beat in terms of its cure rates, 50%, 60% plus until the CD79a antibody came across the finish line. And you can see the uptake there, certainly in the U.S. is very good because I think physicians and patients will use things that improve cure rates. Our bet in first-line diffuse large B-cell lymphoma, similar design. It's basically an add-on to R-CHOP with the tafa-len regimen, which already demonstrated in follicular lymphoma, what we think is outstanding efficacy, a hazard ratio of 0.43, 57% improvement in the time-to-event endpoint there. So we hope to translate that into the diffuse large B-cell lymphoma first line. We're waiting for events. It's an event-driven study. Sometimes the longer events take, it can be better. We'll see what happens, but it should be -- it should get to its final event sort of any day now in the next little while, and then it will take a couple of months to clean and analyze the database and produce results. If we get a positive hazard ratio with a positive p-value, then you have a new regimen that you'll have to get approved and across the finish line, and it hopefully will translate to again because people want to improve cure rates. From a tolerability point of view, it's excellent regimen. I mean we didn't really add much toxicity at all in follicular lymphoma with some really excellent efficacy, and we'll see in diffuse large B-cell, whether we can do the same thing. The other thing we're doing with tafa, just to mention, this doesn't come up a lot is this interest in non-oncology immune-mediated conditions, eliminating B cells in conditions like ITP, some of the more aggressive membranous nephropathies, et cetera. So we have a program ongoing there to get to proof-of-concept work there as well. And then we're developing also with tafa subcu version as well. So there's a lot of activity going on there with potentially a lot of patient benefit.

Okay. And then maybe just kind of more broadly on solid tumor strategy post ESMO. What are kind of go/no-go decisions or criteria you're basing decisions on when you're thinking about advancing KRAS G12D, your TGF-beta PD-1 bispecifics. I guess how do you assess competitive differentiation with those products?

Yes. On G12D, look, that's, as you know, a competitively intense area right now. I think there's 3 things that have to be in place for us. One, a competitive response rate. Right now, to a certain extent, RevMed is the benchmark with their pan-RAS. I think they have response rates between 22% and 29% and PFS between 4 and 8 months. So we have to believe that we have a competitive product. Next, we have to believe that there's differentiated tolerability there, especially in combination with chemo, right? And then we have to believe in the duration of response. We're going to take a look at the data that we produce, take a look at what's happening in the space. There's not -- there's a lot of programs but not a lot of data out there. And if we think we can compete, we'll go first-line PDAC. And really, the question is which approach is best? Is it full dose chemo with a G12D? Or is it a pan-RAS with modified dose chemo. If we're not first, we have to be early and we have to defend it. And it starts with what our data look like at the end of the year, and then we'll call balls and strikes on that. TGF-beta, you want to.

Yes. The bispecific TGF-beta play has obviously been an area over the last 20 years, which hasn't been really successful in terms of targeting people that looked at TRAP, ligand inhibitors, et cetera, largely because of toxicity related to the TGF-betaR2, particularly cardiac toxicity. So what our research group, I think, did really elegantly here is build a bispecific that has differential affinity for the PD-1 at tenfold plus, decimal point greater. So to take the compound straight to the T cells that needed and try and avoid any inhibitory effect where you don't want it to happen. And so we've been in the clinic. We've treated a lot of patients, and we have a therapeutic ratio there that's getting us the safety we need. And then you need, as Bill was saying, the efficacy signal in an area where you will believe enough to take it forward to a registration program. And then as Bill said, at ESMO this year, we will be showing a data set in microsatellite stable colorectal cancer that we think is a very interesting field to play in. Immunotherapy there doesn't exist. In fact, PD-1s alone have single digit, practically no efficacy. So it's not an area where immunotherapy is active. We think we have a very interesting signal that we'll show you that will potentially warrant, as Bill said, a registration-directed program there. The major problem in that entity, and it's a big part of colorectal cancer is liver metastasis. So we'll show activity in both people with and without liver metastasis and then make decisions on where to go forward in terms of registration efforts there. There is no biomarker currently that selects patients. So it will be the broad spectrum of microsatellite stable colorectal cancer, perhaps with some PD-L1 expression attached to it.

Everyone is taking VEGF PD-1s in lung cancer. And so we're not in that group of 20. So this could be interesting for us.

Okay. Great. Maybe kind of turning to the derm portfolio. So maybe just we start with kind of a high-level question on Opzelura. I guess, given your early-stage assessment, I guess, how has that market evolved to the point where Opzelura sales have been maybe been hindered by just kind of a switch to topical nonsteroidals versus kind of internal efforts that could have been executed differently?

Look, there's a -- I think the most important aspect of that market right now is that there is a migration from topical corticosteroids and there's about one prescription for a topical corticosteroid written in the United States every other second. It's a very large market. That migration is happening. And if you look at the data for Opzelura compared to other nonsteroidals, it's tough to beat, whether you're talking about clearance or its relief. We have a prescriber base of like 17,000 physicians. We have complete formulary coverage at all the major PBMs and plans. And so it's about execution in dermatology between now and, let's call it, 5 years from now. I believe that -- and I said this on the call, the product has the potential to grow at a 10% CAGR over a 5-year period, which means we have the potential to 2x that business. I don't think it's a heroic assumption. Half that growth is going to come from Europe where we'll get an indication for moderate AD. Important country there is Germany. And then half that growth will come from the United States. And there are some smaller companies out there that are also working in this area. I don't think this is a fight to the death or a market share battle. As long as this migration continues, which I expect it will, people want to get off steroids. I think triamcinolone was introduced in 1958, works really well. But we have -- there's enough opportunity here in that market with this shift to continue to have this business grow at a solid rate, which is how I think about it.

Are there additional low-hanging fruit you'd point to beyond, like you said, EU and some expansion in the U.S., like that formulary coverage seems to be a competitive advantage based on kind of competitor commentary?

Yes. We have 94% coverage. Most of it is a single step, which is very, very manageable. It's important to manage your discount rate, which we continue to do. We're still having a balanced conversation with the health plans. And if we keep that in place and execute, this will be an important growth driver over the next 5 years.

Okay. Great. And then kind of just taking a step back, kind of higher-level strategy. Can you give us a sense on breakdown of R&D resource allocation by area of development? In your mind, again, early days, are there areas kind of ripe for added versus reduced focus as you move forward, internal versus external focus?

Yes, it's a good question. It's virtually all we do. I think it's virtually what any management team at a pharmaceutical company to do is call balls and strikes in R&D. If you think about the profile of this company as we build it post Jakafi, hematology/oncology will be the 2 most important. And obviously, this is going to be a function of the data and how these compounds look. And then third would be immunology. If you look at our budget right now, that's how it's organized. I will tell you, every project will be put through essentially a scorecard, and we'll make sure that the return justifies the investment and be -- understand the range of possible outcomes because I know that every use of capital is an opportunity cost for another use of capital. And we have a number of different R&D decisions that we'll be making over the next 6 to 9 months. Our MPN business, is mission-critical. Oncology, we're very targeted and selective about where we're going to go. We have to believe that we can be competitive, be early and defend our position. And then, of course, in immunology, we're focused on povorcitinib. And as we think about 2026 in the R&D budget, we'll explain how we're spending the money and why.

Okay. That makes sense. And maybe just to round out the company-specific questions. Obviously, a lot going on. We touched on, I think, the majority of it, but -- and you just mentioned povo there. Like anything you'd point out that we didn't touch on that you'd highlight in the story that investors should be focused on?

I think you had it right, hematology, oncology, immunology. You talked about XR and povorcitinib, which will be important launches, the big launches. I think you covered it all.

Okay. Great. I'm going to move into kind of a mini survey that we're asking all of the biotech management teams. While I do that, if anyone does have a question in the audience, just feel free to raise your hand. We do have some mics. So kind of the backdrop here is biotech seems to be more exposed to external and macro factors of late. So we're asking each of the management teams 3 questions. The first is with China's rise in biotech innovation, how are you thinking about your competitive position here? Will this influence R&D and/or business development strategy currently or in the relative near term?

Yes, certainly. It's a source of innovation and it's a source of competition. I think both are relevant. We have a small office in China and people on the ground doing development as well as business development. That's how we think about it.

Okay. Got it. The next topic is AI. How is Incyte currently leveraging AI or thinking about AI's future disruption potential, I would say, both on the positive and negative side here also?

At the ASCO meeting in Chicago a couple of months ago, someone from Google got up and said, AI will never replace humans, but humans with AI will replace humans without AI. And I think that's true. We have over 20 AI agents in the company across all of our departments, R&D, commercial and others. And we, of course, have partnerships. And look, it's an important enabling capability. And I think Steven is involved directly with some of those things, but -- and it's relevant at Incyte.

Yes. Maybe just one example there because Bill alluded to it. In the regulatory side of things in development, the first answers we give, the first draft are done by an agent just because there's so much repetition across the planet. So once you start populating and the learning modules just get better, that first draft is generated by an agent in seconds and then humans do the editing that's needed. And it's actually for people who were sort of Ladakh, nonbelievers, nonadopters, are sort of pleasantly surprised at how good it gets over time. And that's where we want to head in an appropriate way.

Okay. Great. Speaking of regulatory submission. So the last topic is from the regulatory side, I guess, what's been most impactful to the business or what's generating kind of the most internal conversation. Some examples we've had are changes at FDA, MFN pricing debates, tariffs -- anything else you can think of that's most impactful to your business?

Look, I think FDA is going through some changes right now, but it's still the most reputable skilled regulatory body in the world, and I think it will always be that way, and they'll approve 30 to 50 drugs a year. And I think that's important. We need a scientific-based regulatory body here in the United States. I don't see that as a permanent problem, but a transient one. On MFN, I don't think we should aspire to an international pricing model for lots of good reasons. There does need to be, of course, better balance between rewarding for innovation and affordable medicines. It's going to require contribution from every constituency in the health care, PBMs, 340B, pharma companies, the international geographies. But I don't believe MFN in its purest form is the right thing for the industry, and I think most people would agree with that.

Okay. Got it. Maybe we poll one last time for questions in the audience. Okay. If there are none, I think we'll leave it there. Thanks, guys.

Good. Thank you.