Analyst Conference Summary

biotechnology

conference date: February 15, 2018 @ 5:00 AM Pacific Time
for quarter ending: December 31, 2017 (Q4, fourth quarter 2017)

Forward-looking statements

Overview: Rapid revenue growth, offset by rapid increase in R&D spend. A stunning amount of pipeline progress is being made. $150 million R&D expense related to MacroGenics deal turned net income and EPS to the red.

Basic data (GAAP):

Revenue was $444 million, up 16% sequentially from $381.5 million, and up 36% from $326 million in the year-earlier period.

Net income was negative $148.3 million, down sequentially from $36.0 million, and down from $8.9 million year-earlier.

Diluted EPS was negative $0.71, down sequentially from $0.17, and down from $0.05 year-earlier.

Guidance:

For the full year 2018 Jakafi revenue $1.35 to $1.4 billion; Iclusig revenue $80 to $85 million; total revenue would include royalties & milestones. Cost of revenue $85 to $95 million GAAP, or $64 to $74 million non-GAAP. R&D expense $1.2 to $1.3 billion GAAP, $1.08 to $1.17 billion non-GAAP. SG&A $515 to $535 million GAAP, $465 to $480 million non-GAAP. GAAP change in fair value charge $30 million.

$2.5 to $3.0 billion long-term revenue guidance, including new indication.

Conference Highlights:

Hervé Hoppenot, Incyte’s CEO, said “As we begin 2018, we look forward to key news flow events in the first half of the year, including the initial results of the ECHO-301 trial of epacadostat in melanoma and the REACH1 trial of ruxolitinib in steroid-refractory acute GVHD, as well as FDA action on the resubmission of the baricitinib NDA for rheumatoid arthritis."

Iclusig sales are growing more rapidly than expected.

Cash and equivalents ended at $1.30 billion, up sequentially from $1.28 billion. Debt $24 million in convertible notes. There is a $287 million acquisition-related contingent consideration liability.

In October announced a collaboration and licensing deal with MacroGenics for MGA012.

Epacadostat, a IDO1 inhibitor, Phase 3 trial in first-line advanced or metastatic melanoma in combination with Merck’s pembrolizumab could have the initial data in the first half of 2018. Eight Phase 3, 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). An NSCLC Phase 3 trial in combination with durvalumab should begin this half of 2018.

Ruxolitinib (Jakafi) for GVHD (graft v. host disease) pivotal REACH1 Phase 2 trial has completed enrollment. Results could come in the first half of 2018. If positive an sNDA will be submitted to the FDA. REACH3 Phase 3 for the chronic GVHD is ongoing. Jakafi for essential thrombocythemia Phase 2 trial RESET is ongoing.

INCB39110 (now Itacitinib) is 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 3 trial for treatment-naive acute GVHD began in July. An NSCLC combination trial is in Phase 1.

INCB54828 Phase 2 trial for bladder cancer with FGFR pathway alterations is recruiting patients. 54828 is a FGFR inhibitor. A Phase 2 trial is ongoing for cholangiocarcinoma and should have initial data in 2018.

INCB50465, the selective PI3Kδ inhibitor as monotherapy in patients with diffuse large B-cell lymphoma (DLBCL), continued the Phase 2 CITADEL-202, 203, 204 and 205 trials.

MAG012 Phase 1 solid tumor monotherapy trials are in expansion cohorts. MGA012 is licensed from MacroGenics.

There are also 11 candidates in, or about to enter, early clinical trials. See the Incyte Q4 2017 press release for status updates.

In partnership with Lilly, in December an NDA for baricitinib was resubmitted. Expects an advisory committee review at FDA. Baricitinib is approved in the EU for rheumatoid arthritis and is in trials for atopic dermatitis, psoriatic arthritis, and lupus. Lupus data should be presented later this year.

Capmatinib, Incyte’s potent and selective c-MET inhibitor, for NSCLC, is partnered with Novartis, which anticipates submitting an NDA in 2019.

See also Incyte pipeline.

Cost of product revenue was $22.4 million. GAAP operating expenses were: $446.9 million for research and development and $97.8 million for selling, general and administrative expenses, and a $9.6 million benefit for change in value of a contingent consideration. Total costs $576.7 million. Leaving income from operations of negative $132.6 million. Interest and other income was $6.3 million. Unrealized gain on investment was $21.9 million. Income tax $1.4 million.

R&D for the quarter included a one-time $150 million for collaboration and licensing with MacroGenics, so ongoing expenses were $297 million.

Full year 2017 revenue was $1.54 billion. Net loss was $313 million. EPS negative $1.53.

Q&A:

Q1 2018 Jakafi sales seasonality? Yes, will see the donut hole so gross to net will be at the highest point for the year.

Epacadostat launch expense timing? Commercial team will expand in U.S. and EU, plus medical affairs infrastructure. If submitted in 2H, approval maybe in 2019, preparation in 2H 2018.

ECHO301 biomarkers? PDL1 status, IDO1, RNA sequencing, and tumor mutation burden. PDL1 status is taken at time of entry and was used for stratification.

CAR-T therapy? It is an interesting space, we are interested in how our IO portfolio can help CAR-T therapy. There is some IDO1 data that supports this. We can't talk about collaboration at this time, we are looking for a way to work with the CAR-T players.

R&D expense guidance, is it mostly later-stage development or does it include moving one of the new targets like GITR into the later stage category? Most is advancement of late-stage portfolio, including epacadostat. We are co-funding 30% of baricitinib new indications. GITR, arginase, OX40 earlier stage projects, we don't see those being in large scale clinical trials in 2018, so they don't drive most cost.

On 301, relation of tumor microenvironment to TMB? Early days of understanding mutation burden vs. checkpoint blockade or how it would relate to a doublet therapy. It is likely to be histology dependent. In melanoma the mutation burden tends to be high, if you use 10 mutations per megabase, that might be 70% of the population. We will look for correlation with IDO1 expression.

Most Jakafi projected growth comes from MS and PD, not the new GVHD indication.

PD1+epacadostat next data points? Depends partly on partners. You should see Phase 1/2 updates at some of the medical meetings this year. We have 9 ongoing Phase 3 trials with epacadostat.

We feel we are ahead of our competitor in cholangiocarcinoma.

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