Analyst Conference Summary

biotechnology

conference date: November 1, 2016 @ 7:00 AM Pacific Time
for quarter ending: September 30, 2016 (Q3, third quarter 2016)

I bought a small, initial position in Incyte after these results came it. It is a long-term position based on the extensive pipeline. My intention is to accumulate more if the price is reasonable.
Forward-looking statements

Overview: Continues to ramp Jakafi revenue, raised revenue guidance, showed GAAP net income due to a gain on an investment. Very extensive pipeline of drugs under development.

Basic data (GAAP):

Revenue was $269.5 million, up 9% sequentially from $246.3 million, and up 44% from $187.6 million in the year-earlier period.

Net income was $36.9 million, up 7% sequentially from $34.4 million, and up from negative $39.6 million year-earlier.

Diluted EPS was $0.19, up 6% sequentially from $0.18, and up from negative $0.22 year-earlier.

Guidance:

Full 2016 guidance was increased to: Jakafi revenue $850 to $855 million. Iclusig revenue $25 to $30 million. R&D expense reduced to $570 to $580 million. SG&A expense $285 to $310 million. Change in fair value of contingent consideration $17 million. Expects positive cash flow for remainder of year and should end year with over $750 million in cash and equivalents. 2016 net income $100 to $110 million.

Conference Highlights:

“Incyte continues to deliver dynamic sales growth from Jakafi in the U.S. and now from Iclusig in Europe. With a potential additional future source of revenue from baricitinib, we are able to make significant investments in opportunities across our broad and diverse clinical portfolio,” stated Hervé Hoppenot, Incyte’s Chief Executive Officer

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 so could be approved in Q1 2017. This is partnered with Lilly.

Revenue consisted of product revenue of $236.6 million ($224 million from Jakafi, $13 million Iclusig); royalty revenue of $29.6 million from Novartis for ruxolitinib/Jakavi, and contract revenue of $3.2 million. Now about 9000 Jakafi patients.

Cash and equivalents ended at $717 million, up sequentially from $630.1 million. Debt $643 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). Results presented at ESMO showed safety and 12 month progression free survival of 57%, with median PFS not met yet in melanoma.

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 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.

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 $20.2 million. GAAP operating expenses were: $143.2 million for research and development and $75.8 million for selling, general and administrative expenses, and $8.0 million for change in value of a contingent consideration. Leaving income from operations of $22.3 million. Interest and other expense was $8.3 million. Unrealized gain on investment was $24.3 million. Income tax expense $1.4 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:

GAAP EPS profitability going forward? We will be EPS positive for this year. We will give 2017 guidance in February.

We often progress more than one molecule into Phase1. 57643 & 54329 will be compared for efficacy and safety.

PD-1 enrollment suspension? 1210, listed as active not recruiting. In order to assess the compound's profile, no further information today.

Jakafi revenue growth, inventory, price, volume? There was no pricing increase Q3 v. Q3, nor inventory movement, so almost entirely demand.

MF competitive position? Jakafi measures well against all known compounds. Patients who experienced anemia on Jakafi still showed benefits.

Substantial R&D increase for 2017 color? Will go up because of shifting from this year into 2017. We are not slowing down our development program at all. We are watching the cash flow very carefully to finance our research while looking for every opportunity to create value.

Believes Jakafi has penetrated only about one-third of myelofibrosis patients.

Melanoma as a predictor of success for solid cancers? Melanoma is attractive to test immunotherapies because of its high mutation burden and high inflammation. Whether it predicts efficacy for other tumor types depends on the class of therapy and tumor type. We need to generate the data to speak to what the opportunity is outside of melanoma.

Lilly is not communicating all of the details of their Baricitinib launch to us. The medical profile compares well to TNFs. The target date is early next year.

Pricing climate? Our view is that innovation creates value. You see a number of tumor types that a few years ago had just palliative therapies but not have long-term benificial therapies. There is a lot of noise about cost issues, but if products are truly effective they save money for the health care system.

GITR OX40 timelines? Probably more than a year to see Phase 1 data.

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