Analyst Conference Summary

conference date: February 11, 2016 @ 7:00 AM Pacific Time
for quarter ending: December 31, 2015 (Q4, fourth quarter 2015)

Forward-looking statements

Overview: Oops. Reaction was mainly to discontinuing some Phase 3 trials after preliminary data showed lack of efficacy for Jakafi in solid cancers.

Basic data (GAAP):

Revenue was $243.9 million, up 30% sequentially from $187.6 million, and up 97% from $124.0 million in the year-earlier period.

Net income was $55.2 million, up sequentially from negative $39.6 million, and up from negative $36.9 million year-earlier.

Diluted EPS was $0.29, up sequentially from negative $0.22, and also up from negative $0.22 year-earlier.

Guidance:

Full year 2016 Jakafi net product revenue is expected between $800 and $815 million.

Expects to break even on a GAAP basis.

Conference Highlights:

Discontinued all studies of ruxolitinib (Jakafi/Jakavi) in solid tumors as the data did not show any efficacy. INCB39110 trial will be discontinued in pancreatic cancer. Commercial activities of Jakafi on label (myelofibrosis and polycythemia vera) are unaffected. Other solid cancer studies that are not based on the systemi inflamation hypothesis will continue.

Baricitinib is expected to provide Incyte with a second significant source of revenue. An NDA for rheumatoid arthritis was submitted to the FDA and EU MAA, which generates a $55 million milesone for Q1, and if approved by the FDA a $100 million milestone payment from Lilly.

Revenue consisted of product revenue of $182.0 million, all from Jakafi; royalty revenue of $23.6 million from Novartis for ruxolitinib/Jakavi, and contract revenue of $38.2 million.

Cash and equivalents ended at $708 million.

"Epacadostat, Incyte’s first-in-class IDO1 inhibitor, is expected to enter Phase 3 during the first half of 2016 in first-line advanced or metastatic melanoma in combination with Merck & Co’s pembrolizumab. Multiple Phase 2, tumor-specific, expansion cohorts of epacadostat in combination with anti-PD-1 and anti-PD-L1 checkpoint modulators are also underway."

INCB39110 is in a proof of concept trial for graft vs. host disease.

INCB52793 is in a dose escalation study of advanced malignancies.

In the coming months Incyte will have 13 development molecules in trials.

See also Incyte pipeline.

Cost of product revenue was $9.7 million. GAAP operating expenses were $116.6 million for research and development and $52.5 million for selling, general and administrative expenses. Leaving income from operations of $65.1 million. Interest and other expense was $8.5 million. Income tax expense $0.5 million.

Incyte has an alliance with Agenus to develop checkpoint modulators for immuno-oncology.

Q&A:

Why did not shutting down the programs reduce R&D guidance for 2016? Our guidance does include the program cancellations announced today.

Emerging data for checkpoint combinations? The emerging data supports our prior expectations. We expect to start a Phase 3 melanoma trial with Merck in the next few months.

Organic growth excluding the price increase? We took a 4% price increase at the end of September. Inventory was constant at 3 weeks.

PV vs. MF in 2016? PV patients are growing rapidly and new PV patients will soon exceed new MF patients. But there is a much bigger base of MF patients.

Epacadostat data? We will start to present data in the second half of 2016, but we don't know if all of them will come out in 2016, depends on enrollment. This is with Merck in combination with pembrolizumab or other checkpoint inhibitors.

SG&A growth rate? We are preparing for future growth.

New data at AACR? The theme will be grounding people in the science for the new items in the portfolio. Titles will be announced in a few weeks.

PV discontinuation rates and compliance? We only have 12 months of data, so too early to say. We would want 24 months of data.

Pathways in solid tumors is a crowded market, where are you headed? There are 10 PD1 agents in development, and two approved. We are looking for preclinical data that would indicate our PD1 would work in combination, rather than alone.

The break even guidance includes the milestones announced, but the $100 million is recognized over time, so only the part recognized in 2016 is included.

Baricitinib value, more than Jakafi? 20% to 29% tiered royalty rate worldwide. The potential of baricitinib in rheumatoid arthritis, it is a product that could be successful in a large market.

Do you think the whole concept of inflamation and cancer should be discounted because your drug was ineffective? We don't know about other company's molecules, but we discontinued all of our programs, based on trial results from a couple of trials. We will continue to analyze the data and may find out more why the hypothesis failed in Phase 3.

Gross to net? We have a decline in Q1 because 50% of our patients are on Medicare. In general our gross to net is similar to other companies.

There is not much competition in PV and MF, so we see our franchise as potentially strong over a long number of years.

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