Analyst Conference Summary

biotechnology

conference date: August 9, 2016 @ 7:00 AM Pacific Time
for quarter ending: June 30, 2016 (Q2, second quarter 2016)

Forward-looking statements

Overview: Raised guidance a notch.

Basic data (GAAP):

Revenue was $246.3 million, down 7% sequentially from $263.5 million, but up 51% from $163.0 million in the year-earlier period.

Net income was $34.4 million, up 43% sequentially from $24.0 million, and up 269% from $9.3 million year-earlier.

Diluted EPS was $0.18, up 50% sequentially from $0.12, and up from $0.05 year-earlier.

Guidance:

For the full year 2016 increased estimated Jakafi product revenue to a range of $835 to $835 million, from a prior range of $815 to $830 million. R&D expense was lowered to $620 to $630 million. Everything else unchanged.

Conference Highlights:

Agreed to acquire Ariad's European business including development and commercialization rights to Iclusig in Europe. This will help with sales of future product in Europe. Revenue from Iclusig should offset cost of the European organization. Iclusig is already approved in Europe for CML and Ph+ AML that are resistant to dasatinib or nilotinib. Paid $140 million cash plus tiered royalties and some other milestone payments. Should be accretive beginning in 2018.

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. Could be approved in Q1 2017.

Revenue consisted of product revenue of $212.1 million, all from Jakafi; royalty revenue of $26.0 million from Novartis for ruxolitinib/Jakavi, and contract revenue of $8.2 million.

Cash and equivalents ended at $630.1 million, down sequentially from $810.7 million. Debt $635.5 million in convertible notes.

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).

Jakofi (ruxolitinib) for GVHD (graph v. host disease) is in development and could create a second stream of revenue. "In April 2016, Incyte announced an agreement with Lilly, enabling Incyte to develop and commercialize ruxolitinib in the U.S. for the treatment of GVHD, and an agreement granting Novartis exclusive research, development and commercialization rights for ruxolitinib in GVHD ex-U.S. Incyte recently announced that the FDA has granted Breakthrough Therapy Designation for ruxolitinib in patients with acute GVHD."

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

INCB39110 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 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.

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 should start this year. 54828 is a FGFR inhibitor.

INCAGN1949, an OX40 checkpoint modulator, could start a Phase 1 study for solid tumors this year. This is in partnership with Agenus.

Incyte has 14 development molecules in clinical trials against 11 targets.

See also Incyte pipeline.

Cost of product revenue was $12.4 million. GAAP operating expenses were $120.3 million for research and development and $66.8 million for selling, general and administrative expenses, and $2.3 million for chang in value of a contingent consideration. Leaving income from operations of $44.6 million. Interest and other expense was $9.4 million. Income tax expense $0.8 million.

Q&A:

Epacadostat combinations go forward decision criteria? The program is going well. We have enrolled over 600 patients this year alone. The whole study will be a poster at ASMO (European Society for Medical Oncology) on October 10, with abstracts live on Sept. 28. There are 12 tumor types in the larger Phase 2 program. We will look at at least response rate, time to event data, and biomarkers. All that goes into decisions about what to pursue in Phase 3 trials.

In the past you had expected to have decions (go/no go) on Epacadostat plus inhibitors by year end. Answer to skeptics saying inability to make a decision is an indictment of the program? We need the 3 components to make decisions. We are extremely confident in the program, and finding the appropriate venues to share the data. I favor more mature data sets to make informed decisions, with the 2 scans being critical. In immuno-oncology there is a tendency to see later responses.

Volume v. Price for Jakafi? 14% sequential growth with a 6% price increase at beginning of the quarter, which works out to a 5% price increase in the real world. Prescriptions were up over 6% in Q2.

Partnering on future collaborations? We like partnering and cost sharing programs. But it would not stop us from going ahead with a good program.

Duration of treatment for Jakafi? Duration has been getting better for both MS (myelofibrosis) and PV (polycthemia vera), and the new trial data supports longer therapy. We try to keep patients on therapy because we believe they will benefit.

OX40 and GITR safety? So far seem safe as monotherapies. For combinations with PD1 we will have to wait for the actual clinical data.

Bladder cancer competition, so why bladder first? FGFR has 3 forms. The genetics are particularly clean for bladder for FGFR3 and we have a diagnostic for it. So it is an attractive target. The first group of competitive inhibitors were less selective, newer ones are more selective. We have been pleased with safety and efficacy in our Phase 1 trials for 54828.

For first line lung cancer, it can be an advantage to not be not be out front, but to learn from earlier attempts, like the Bristol failure. Where the biomarker cutoffs lie is likely more important in lung cancer than melanoma.

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