Analyst Conference Summary

biotechnology

Incyte
INCY

conference date: February 14, 2017 @ 7:00 AM Pacific Time
for quarter ending: December 31, 2016 (Q4, fourth quarter 2016)


Forward-looking statements

[this summary may be revised]

Overview: Revenue continues to ramp rapidly, but so does R&D spend, keeping profits to a minimum as a broad pipeline continues to be developed.

Basic data (GAAP):

Revenue was $326.5 million, up 21% sequentially from $269.5 million, and up 34% from $243.9 million in the year-earlier period.

Net income was $8.9 million, down sequentially from $36.9 million, and down from negative $55.2 million year-earlier.

Diluted EPS was $0.05, down sequentially from $0.19, and down from $0.29 year-earlier.

Guidance:

Full year 2017 should see $1.02 to $1.07 billion Jakofi revenue. Iclusig net product revenue $60 to $65 million. R&D expense $785 to $835 million, plus $205 million for anticipated one-time items (milestones for collaborations). SG&A expense $340 to $360 million (including stock-based compensation). Change in fair value contingent consideration, $30 to $35 million.

Note no estimate is included for revenue from milestones, royalties or contract revenue. The timing of milestone payments is uncertain, so revenue may fluctuate quarter to quarter.

Q1 will see the usual negative donut-hole effect.

Conference Highlights:

“Having now surpassed $1 billion in total annual revenue for the first time, we believe we are in a strong position to execute on our discovery and development objectives and build a global biopharmaceutical company bringing medicines to patients in need.” stated Hervé Hoppenot, Incyte’s Chief Executive Officer

Incyte amended its collaboration agreement with Agenus to develop GITR and OX40 antibodies (they are immune checkpoing modulators) to royalty programs. Incyte will fund and conduct development, Agenus will receive a 15% royalty if they are commercialized, and possible milestone payments. The TIM-3 and LAG-3 collaboration deals remain unchanged; they are already royalty programs. Agenus also gets a $20 million milestone payment. Separately, Incyte will buy 10 million shares of Agenus (AGEN) at $6 per share, a premium above the February 13, 2017 closing price of $4.12. See Incyte press release on Agenus agreement.

Revenue consisted of product revenue of $250.4 million ($ million from Jakafi, $ million Iclusig); royalty revenue of $33.2 million from Novartis for ruxolitinib/Jakavi, and contract revenue of $42.9 million.

Jakafi full year 2016 revenue was $853 million, up 42% from $601 million in 2015. Believes peak sales will reach $2 billion per year, if further approvals come through.

Cash and equivalents ended at $809 million, up sequentially from $717 million. Debt $651 million in convertible notes.

"Baricitinib, a potential new oral treatment for patients with rheumatoid arthritis (RA) licensed to Eli Lilly and Company (Lilly), is now approved in Europe as Olumiant® and is under regulatory review globally. The European approval of Olumiant triggers a $65 million payment to Incyte from Lilly, and Incyte is eligible to receive additional potential milestone payments, as well as royalties on sales of Olumiant. Incyte has recently opted into co-development of multiple new indications for baricitinib, including psoriatic arthritis, in which Lilly is expected to begin a Phase 3 trial in 2017."

"Two recent strategic collaborations have added to Incyte’s early-stage R&D programs—the alliance with Merus provides access to bispecific drug discovery and the licensing agreement with Calithera adds INCB01158, a first-in-class oral arginase inhibitor, to Incyte’s immuno-oncology development portfolio."

Epacadostat, a IDO1 inhibitor, started a Phase 3 in June in first-line advanced or metastatic melanoma in combination with Merck’s pembrolizumab. The trial will have 600 patients with initial data in 2018. Multiple Phase 2, tumor-specific, expansion cohorts of epacadostat in combination with anti-PD-1 and anti-PD-L1 checkpoint modulators are also underway (the ECHO series trials). Phase 3 trials for NSCLC, bladder, renal, and head and neck cancers and planned. However, will not move ahead with ovarian cancer or triple-negative breast cancer.

Novartis expects to announce NSCLC data bor Capmatinib (partnered) in 2017, with an NDA submission expected in 2018.

Jakofi (ruxolitinib) for GVHD (graph v. host disease) is in development, with a Phase 3 trial expected to start this quarter.

Jakafi received positive Phase 3 data in trials for myelofibrosis and polycythemia vera (both myeloproliferative neoplasms).

INCB39110 (now Itacitinib) is also in a proof of concept trial for graft vs. host disease and has completed recruitment, with initial data expected this year. A combination Phase 1 trial for lung cancer should start this year.

The Phase 1 clinical trial for INCAGN1876 for the GITR checkpoint modulator started in June for advanced or metastatic solid tumors. This is in partnership with Agenus.

The INCB59872 LDS1 Phase 1 program continued for AML and small cell lung cancer, still in dose escalation phase.

INCAGN1949, an OX40 checkpoint modulator, is in dose escalation of Phase 1 study for solid tumors. This is in partnership with Agenus.

INCB52793 is in a dose escalation study of advanced malignancies.

INCB50465 Phase 1 B-cell malignancies preliminary data showed "promising efficacy" and was well-tolerated.

INCB54828 Phase 2 trial for bladder cancer with FGFR pathway alterations is recruiting patients. 54828 is a FGFR inhibitor. Another Phase 2 trial was started for cholangiocarcinoma. First data should be available in 2017.

INCSHR1210, a PD-1 modulator licensed from Hengrui, also started Phase 1.

New therapies in Phase 1 dose escalation studies for advanced malignancies include INCB54329, 57643, and 53914.

Incyte has 15 development molecules in clinical trials against 11 targets.

See also Incyte pipeline.

Cost of product revenue was $20 million. GAAP operating expenses were: $162 million for research and development and $96 million for selling, general and administrative expenses, and $7 million for change in value of a contingent consideration. Leaving income from operations of $42 million. Interest and other expense was $9 million. Unrealized loss on investment was $24 million. Income tax expense $0.6 million.

Reduction in R&D expense guidance is from slowing pace of hires and pacing of programs, but expects a significant increase in R&D expense in 2017.

Q&A:

Epacadostat for NSCLC Phase 3 trial design? Details are still being worked out. Data will be released in May. Terms with Merck for pembrolizumab are being discussed. Has not even decided which company will lead the study.

Jakofi guidance price increases? We might make modest price increases, but the revenue increase is mainly driven by volume.

Agenus amendment driver by new data? No. It is designed to given Incyte control of the programs. That should significantly simplify the decision-making process.

Jakofi (ruxolitinib)vs. 39110 (Itacitinib)? 39910 is more specific for JAK1, which should help in graft-versus-host degrees.

Could you you run multiple Phase 3 studies on a particular tumor type in Epacadostat / pembrolizumab? You are right, there could be multiple studies for a single tumor type. If combined with chemotherapy we would need safety information too. You can start Phase 3 with a small number of patients for the safety run-in.

Opt in with Lilly? The psoriatic arthritis one is going forward. We plan more indications, but have not worked out the packages with Lilly yet.

We are still gathering data for Epacadostat, going forward in combination with pembrolizumab is in the tumors that are known to be "hot." Other types may vary as data comes in.

Capital constraints on the number of programs? We are managing the P&L to allocate resources to the most promissing programs. We were cash flow positive in Q4. We can do epacadostat + pembrolizumab Phase 3, and some of that might be funded by partners. We can afford to move into Phase 3 studies with more products if the data supports that. We are attracting some of the top talent in the industry, and are expanding in Europe. We are looking to develop a team in Japan. So we continue to build internal capabilities while managing the cash flow.

Agenus, OX40 and GITR with epacadostat paper? AACR abstact cannot be discussed before the paper is presented. It is an area of active research.

Bristol, Roche, Astra-Zeneca's interest in epacadostat? The sequence of data is different for each of the partners. Would not characterize any difference, there is a lot of interest in the target.

Dermatology interest? We have no strategy for moving Incyte into dermatology. Sometimes the product leads you, as with JAK inhibition and dermatology. We will follow the data.

Inventory issues should not affect Q1 results, just the usual donut-hole effect.

Baricitinib ramp expectations? Lilly said they expect to get to a good point with the FDA sometime soon. It could become a very significant product for us over time.

[note that this summary captures on some of the Q&A]

 

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Disclaimer: My analyst call summaries may include both our condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. This is investment journalism, not financial advice.

Copyright 2017 William P. Meyers