Incyte Corporation (INCY) Earnings Call Transcript & Summary

Thanks for joining, everyone. We have Bill Meury and Pablo Cagnoni from Incyte. I'm super happy to have both of you guys up here.

Really big year to the company, big year ahead next year, too. Maybe you can just open it off with where things stand today, and then we'll get into some more detail in Q&A.

Yes. Thanks. It's great to be here. Our focus right now is, I think, pretty simple, which is to transition the company from Jakafi to a hem/onc I&I company. And essentially, what we're trying to do is build the glide path to high growth and durable revenue earnings and cash flow post 2029 post Jakafi. There's a lot of substrate in the company. We have the R&D and commercial capabilities to execute. We kind of break the business down into 3 parts. There's a core business, our pipeline, of course, we have OpEx and then business development. Core business is performing extremely well. That includes not only Jakafi, but the growth portfolio that exists post Jakafi: Opzelura, Niktimvo, Monjuvi and Zynyz, and maintaining solid fundamentals with that part of the business is going to be important as we transition. And in terms of the pipeline. We have 7 priority projects that can create meaningful value long term. We're focused right now in 989 and 617F in hematology. We also have 3 solid tumor programs in pancreatic, colorectal and ovarian cancers, that's G12D, TGF-beta by PD-1 and CDK2. Those programs are really starting to declare themselves, and we'll be moving several of them into Phase III in 2026. I'd say that Incyte has systematically and quietly created what could be a high potential oncology portfolio. And then in I&I, we have povorcitinib, an oral JAK, that we're developing for 3 indications: hidradenitis, prurigo nodularis and vitiligo, and we'll submit the NDA for povorcitinib in the first quarter of 2026. And then I add into that -- to the 6, #7, which is Niktimvo, which is we launched for GVHD alongside Syndax, which is off to a very good start. And this -- I include that because we're developing Niktimvo in combination with Jakafi; and with steroids, those results will be available in '27-'28. But that pipeline has the potential to create a lot of value in the future. Not all these programs necessarily will work. Not all of them have to work in order for us to build Incyte into the next decade. We're going to be smart about operating expenses, being financially disciplined on one hand, but not underfunding any critical initiatives that can compromise growth over the long term. Business development, like in any situation, is going to be supplemental. It can be a multiplier of our growth. We'll do things that extend the core or strengthen the core and be really smart about how we use the balance sheet. And now it's time to convert Phase I studies, when we think about our pipeline, into Phase III studies and FDA approvals, and that's about execution.

Awesome. Let's start off on the pipeline side. I think we should start on calreticulin just because pretty close to a big ASH presentation, a lot of focus there, obviously. Not much to talk about on the safety front. The only thing we've gotten some questions on is the cytopenias and anemia rates. Maybe you could just kind of walk through, number one, what are the background rates in some of these trials? And then number two, mechanistically, could there be anything that would explain like a low rate of events?

Yes. So it's hard to talk about a background rate because it's a very broad -- very heterogeneous population. So what you're going to see -- just to go back to what you're going to see at ASH in 4 days, in essential thrombocythemia, which is a totally different population from MF, you're going to see an abstract of data we presented at the EHA earlier this year. And in that, what you see is a rapid normalization of platelet counts. A lot of these patients at the beginning of the study are hydroxyurea or other cytoreductive therapy. So some of the cytopenias, which are rare, could be related to that over time. I think platelet counts stabilize in normal range. So I think that's really not an issue. I think MF is a more complicated disease because the balance there that we're trying to correct is an imbalance between the wild-type clone and the mutated clone that is basically over time replacing the wild-type clone, and that's why these patients have cytopenias. There's also a shift away from making red cells for erythroid production, and that also causes the cytopenias that you see. The correction of that, when you give 989, may not be immediate. We suppress the malignant clone fairly quickly. You'll see data on that at the translational presentation on Saturday. But sometimes the wild-type clone takes a little bit longer to recover or sometimes it's much smaller. Sometimes it's a lot of fibrosis in the marrow. As a result of that, cytopenias do get reported over time. Now I think it's important to understand how the drug works. And CALR has 2 mechanisms by which is exclusively selective for mutated CALR cells -- malignant mutated CALR cells. One is it binds to a neoepitope, which is mutated calreticulin. That's obviously, as the word defines it, is not expressed in a broad set of tissues. But importantly, what it does is it disrupts the interaction between the mutated CALR protein and the thrombopoietin receptor. So in order for a cell to be inhibited by the antibody, it has to express both. Malignant cells express both, the TPOR receptor and the mutated protein. There are -- there's a group of normal cells that express mutated CALR, but don't have the thrombopoietin receptor. Those cells will not be touched by 989. So when you put all that together, it's hard to conceive that 989 will be toxic to normal hematopoiesis, that cytopenias may occur early in the treatment as it reduces the size of one clone and the wild-type cells emerge. That's possible, and we'll see that and each report is a single-arm study. So you're going to see a number of adverse events listed. But it's hard to conceive that this drug will be fundamentally toxic to benign hematopoietic cells.

And I guess one more data point on that is the anemia benefit, at least that's laid out in the update.

Yes. Thank you. Thank you for the assist. Yes, I should have said it. So there is a clear impact on anemia that tells you that the drug is unlikely to be toxic to red cells. And what we reported in the abstract is that 55% of the patients have improvement in anemia and 40% major -- sorry, 15% major and 40% minor. And that is a hard endpoint that is either becoming transfusion independent or is an improvement in hemoglobin more than 1.5 grams in a sustained way. So this drug, I think it is the first time that this magnitude of anemia improvement has been seen in patients with MF and is as a result of the fact that 989 really shifts the production of blood cells away from malignant cells and into the benign normal erythroid cells and that improves hemoglobin.

And I think the anemia point is probably underappreciated by investors.

I agree. So much so that I forgot to say it. Yes.

Well, I would point out that -- and this was done at the Mayo Clinic, patients with MF and no anemia will live on average about 7 to 8 years, patients with MF and anemia only 2 to 3 years. And there's a real trade-off when you're using Jakafi or any other type of inhibitor like Jakafi, which is you can control the disease symptoms and shrink spleen, which cause anemia. If you avoid the anemia, you can't control the symptoms. And so as remarkable and as successful as Jakafi has been and made a big difference in patients' lives, it's a trade-off drug. And this is a fundamentally different approach.

Yes. I think that it's really important. So there's 3 things you want to do in MF: shrink the spleen, improve the symptoms and as a result of that, you want to improve the anemia. Jakafi does 2 of the 3, makes the third one worse. No, it doesn't make it better, makes it worse. 989 clearly does all 3. That's the data in the abstract. You'll see more detail on Sunday, but it clearly does all 3: shrinks the spleen, improves the symptoms, improves the anemia.

Awesome. And the anemia benefit, besides being commercially relevant, as you laid out, besides being proof of mechanism, it also kind of opens the door from a regulatory perspective in MF?

I think it does. Obviously, we need to see if the FDA agrees. For those of you maybe not super familiar, so spleen shrinkage measured that SVR35, 35% shrinkage of the size of the spleen by MRI, has been the endpoint -- part of the endpoint in MF for now 14, 15 years since Jakafi was first approved. The second component of that endpoint has been improvement in symptoms measured in a couple of different ways or expressed in a couple of different ways, either as mean reduction or TSS50. I think it's very important to have a -- but there's never been a drug that improves anemia to this magnitude. And so I think it's a time to have a conversation with FDA and propose spleen and anemia as co-primary endpoints. I think it's very relevant. I think anemia, as I defined it, is a hard endpoint in these patients. Now we'll see how that conversation goes. If we need to do symptom, we'll do symptoms. The symptom data you're going to see at the meeting expressed at TSS50, I think, looks strong. So we can go either way. I just think anemia is a more relevant measure of what the drug does.

Yes, that makes sense. And for what you just laid out on the regulatory side, is that second line in addition to frontline for MF?

So I think in MF, the development will proceed in both in a staggered fashion. Second line is more straightforward. We have a lot of data again in the abstract and the presentation in patients that are either intolerant or suboptimal responders to Jakafi. That's where most of the data in the abstract are, and it shows once again, spleen reduction, symptom improvement and anemia improvement. That's a pretty straightforward Phase III trial to design. We are in the process of finalizing the dose selection. And at some point in 2026, we'll roll that out. First line, we need a little bit more data. So what we have right now in the cohort of patients that received single-agent 989, there's a small group that would consider Jakafi ineligible. So not an all-comer naive population, but a subset that are called Jakafi ineligible. We'll show data in those patients at the conference on Sunday. And that is sort of the beginning of understanding what 989 does in true first-line MF, selected group with probably worse outcomes, but still first line. We're in the process of enrolling patients, truly naive patients to 989 or 989 Jakafi. That's ongoing. We'll have the data in 2026. And that data will serve as a foundation for the Phase III trial in first line as well. So this is all moving in a staggered fashion, second-line ET, second-line MF, first-line MF.

Should we be talking about transfusion burden at all within the anemia conversation?

It's a good question. If we hadn't seen this increase in hemoglobin, perhaps it would be more relevant. But I think the increase in hemoglobin alone might be important enough. We'll have that data.

Yes. I guess like why -- if you're seeing that level of hemoglobin increase, like why wouldn't you be helping out the transfusion burden...

Well, none of the patients are inter-transfusion dependent. That's all.

Sure. That makes sense. All right. What about on the co-mutation side, maybe this is a topic for ASH, but yes, one question for a long time has been and MF cells can accumulate more mutations, can it be later stage, get more beat up, if you will? What's our level of confidence calreticulin is still the driver mutation there?

So what do we know about MF in general, aside for 989 is that it's a monoclonal disorder. So when there is a mutation present, that mutation drives the disease. There could be coexistent mutations, but those are, what's usually called, passenger mutations. They don't drive the disease. And we'll have -- without getting ahead of ourselves, but on Saturday, you'll see a deep translational analysis of the data that shows in a small datasets that when patients have a coexisting mutation, hitting CALR still leads to the reduction in the size of the clone, which tells you that CALR is indeed the driver. And it's the same with V617F, and it's the same with BCR-A1 CML. These are monoclonal disorders.

Perfect. Just one on the ET side. What is the status of regulatory discussions? And as we're talking about the DCHR endpoint, there's different platelet cutoffs, what's your expectation there?

Regulatory interactions have started. They have not been concluded. Base case is that we'll have to use 450,000 platelets. I think there's an argument to be made that a little bit of room there is helpful for patients, by the way, because there's no evidence that patients with 500,000, 550,000 platelets have any higher risk of thrombosis, but it will be a conversation with FDA.

Awesome. All right. Let's switch gears. Let's go to the JAK2 V617F, stay on the hem/onc side. Recently option Prelude's asset. What does that tell us about your ongoing study, your confidence in your lead asset?

Not much. So let's take a step back. I remain convinced that the thesis of inhibiting V617F, the pseudokinase in the mutated -- in patients with V617F mutation, if you hit it, it's going to lead to positive clinical outcomes in patients with MPNs. And let's remember, V617F is the remaining of MPN patients. MF, if you combine V617F and CALR across ETMF and polycythemia vera, you basically cover more than 90% of MPN. So that's an important point, and they're mutually exclusive. We introduced the program in the clinic. What we learned over the past 12 months is that due to the poor solubility of the molecule, despite a better formulation that we introduced, the exposures were not hitting the IC35 that we thought and predicted you have to hit to get a positive clinical outcome. We are replacing that formulation for a solid dispersion formulation that will be introduced imminently. And we expect that, that will solve the exposure problem. So over the next 6 to 9 months, we'll generate data that will help answer the question, a, whether we have the right molecule; b, the right exposure. And if those 2 things are correct, then we should have some degree of clinical impact. Now in parallel with that, we have internal backup programs because this is a critical area for us to win. So we are never betting all on one molecule. Those backup programs are going to be advanced now, just in case. And in parallel with that, we're constantly scanning the landscape for ideas that conceivably could be better than our ideas in this space. Of those ideas that we saw, Prelude had found a different chemical space for V617F inhibitor. We thought it was important to have an option to acquire that. What we did is we put in place a collaboration. They're going to put the molecule in the clinic. Once the data are out, we get to take a look at the data and then decide whether we exercise the option.

Perfect. And what got you excited about the Prelude compound? Like is it more about a bioavailability med chem, different binding pocket? Like what are the properties?

It's a different binding pocket. And honestly, the preclinical data was really of interest to us. I mean this -- to get further insights into the molecule, you need to discuss it with the Prelude team. I mean it's their molecule at this point, we just have an option deal.

Awesome. All right. I guess just thinking about the target product profile for V617F, without going into too many details, but like do you think this needs to match Jakafi on efficacy? Or given the safety advantage, can it be a little lower? What's the way to think about that?

That's a really good question. Look, it has -- the idea here with a completely different tool is to have the selectivity you see with 989, right? Now antibodies, obviously, when [indiscernible] with an antibody is rare that you're going to get with a small molecule. So it's never going to be the same. But I think that if that window, that therapeutic window that we saw in preclinical models pans out, you should have some of the same impact on the disease that you see with 989 without the toxicity of Jakafi. Let's remember, Jakafi has no selectivity between wild-type and malignant clones. It works beautifully as we discussed on spleen and symptoms, but it has no selectivity. So if you expand that selectivity window, you should get a lot of the benefits of Jakafi, at least in terms of long-term spleen reduction, symptom improvement and perhaps some of the anemia impact that you see. Whether it's as good as 989, that's a different question that I can't answer today. But the selectivity window, it's going to be -- have to be broader than -- wider than Jakafi.

Great. For tafa? I mean, there's a first-line DLBCL study, Phase III, that's ongoing. I feel like it's fairly under the radar for investors. It's been a little slow on the event rate accrual side, right? Is there anything else that's going on there? Where do you stand?

There's nothing going on. We just need the events. This is just for everyone, it's a first-line DLBCL study adding Monjuvi, Revlimid to our CHOP basically. So it is a curative intent. We think it will dramatically expand the eligible population for tafasitamab. And the study has been running. And Gavin, the only thing remaining is to reach the number of progression events, PFS events in order to lock the database and unblind the study. There's nothing else going on.

And how much will that expand the opportunity for tafa?

Well, the total addressable market frontline DLBCL is probably 2x, 2.5x what it is for relapsed/refractory. And so it would be a pretty significant value driver for Incyte if that study broke our way.

Yes. Makes sense. All right. I'm going to actually jump over some other pipeline assets, if we don't have time for today, which we'll talk about next year. But I'm going to go commercial, but stay on hem/onc and do Jakafi XR. Mid-'26 approval. How much are you expecting in terms of switch from the twice a day?

Yes. I think when you look at analogs, the range is pretty wide. It could be as low as 10%, as high as 50%. We like to work with a range of 15% to 20%. If you pick a midpoint, call it, roughly 20%, it provides an opportunity to preserve almost $0.75 billion of Jakafi as we go through the '29 transition. The key to these conversions is, obviously, you have a sales organization that's wired into the hematology community and then you have to secure formulary coverage and work with specialty pharmacies. And we'll set a price that makes sense for the health care system and makes sense for Incyte. And I think that's a reliable way to think about it.

All right. That makes sense. Anything you wanted to flag quickly on Niktimvo in the last 30 seconds-or-so?

Just that it continues to do really, really well. We'll have a very good fourth quarter. Drugs annualizing at north of $200 million. I think it's differentiated by mechanism, CSFR targets macrophages and fibrosis, broad organ control. And importantly, we see it retains activity after Jakafi use. And if we can get the combination studies done and have positive results, it will be an important product to Incyte.

Awesome. I think we'll actually wrap it up right there, right on time, but really appreciate you joining and see you at ASH next weekend. See you then. Thank you. Thank you, everyone.

Thanks.