Analyst Conference Summary

biotechnology

conference date: October 30, 2018 @ 5:00 AM Pacific Time
for quarter ending: September 30, 2018 (Q3, third quarter 2018)

Forward-looking statements

Overview: Solid revenue growth, but mainly awaiting clinical data. GAAP EPS down, non-GAAP EPS up.

Basic data (GAAP):

Revenue was $450 million, down 14% sequentially from $522 million, and up 18% from $382 million in the year-earlier period.

Net income was $29 million, down 45% sequentially from $52.4 million, and down 19% from $36 million year-earlier.

Diluted EPS was $0.14, down 42% sequentially from $0.24, and down 18% from $0.17 year-earlier.

Guidance:

Slightly changed for full year 2018. Revenue low end bumped up to $1,370 million, high end still $1,400 million. Research and develpment expense decreased to $1.15 to $1.2 billion GAAP, $.993 to $1.038 billion non-GAAP. Administrative expense increased to $420 to $440 million GAAP, $270 to $785 million non-GAAP.

Conference Highlights:

Hervé Hoppenot, Incyte’s CEO, said "The total number of patients taking Jakafi continues to increase in both approved indications, and we have raised the lower end of our full year revenue guidance. We see a remarkable set of opportunities in the coming months from our late-stage development portfolio, including both ruxolitinib and itacitinib as potential treatments for certain patients with GVHD. Recent data from pemigatinib and capmatinib, which are both Incyte-invented molecules, as well as from ruxolitinib cream, all serve to highlight the quality of Incyte’s drug discovery capabilities, and the value created by our R&D efforts" Jakafi revenue and patient add growth has been relatively consistent.

In the quarter there was a negative inventory effect on revenue of $8 million.

Ready to launch for GVHD if approved.

Non-GAAP numbers: Net income $83 million, up 46% sequentially from $56.9 million, and up 102% from $41 million year-earlier. Diluted EPS $0.38, up 6% sequentially from $0.36, and up 100% from $0.19 year-earlier.

Cash and equivalents ended at $1.4 billion, up sequentially from $1.2 billion. Debt $25 million in convertible notes. There is a $286 million acquisition-related contingent consideration liability.

In June 2018, the FDA approved the 2mg dose of Olumiant (baricitinib) as a once-daily oral medication for the treatment of adults with moderately-to-severely active rheumatoid arthritis (RA) who have had an inadequate response to one or more tumor necrosis factor (TNF) inhibitor therapies. The atopic dermatitis trial is in Phase 3. Baricitinib is licensed to Ely Lilly; Incyte receives royalties. A $100 million milestone payment was recorded in Q2.

The pivotal REACH1 trial of ruxolitinib (Jakafi) in combination with corticosteroids for the treatment of patients with steroid-refractory acute GVHD met its primary endpoint. Incyte filed an sNDA for the approval of ruxolitinib for the treatment of steroid-refractory acute GVHD with the U.S. Food and Drug Administration (FDA) in Q3 2018, with breakthrough designation. PDUFA date is February 24, 2019. REACH3 and REACh2 Phase 3 trials for the chronic GVHD are 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 next 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.

Pemigatinib (INCB54828) for cholangiocarcinoma and bladder cancer data presented at ESMO showed promising efficacy. Expects to file with FDA in 2019 for cholangiocarcinoma. The Phase 2 trial for bladder cancer with FGFR pathway alterations is recruiting patients. 54828 is a FGFR inhibitor.

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. Alos in combination therapy with Jakafi.

MGA0012 Phase 1 solid tumor monotherapy trials are in expansion cohorts. MGA012 is licensed from MacroGenics.

INCMGA0012 (PD-1) is now in Phase 2 for endometrial cancer, merkel cell carcinoma, and anal cancer, with data expected in 2020, and possible future combination studies.

INCB54707 (JAK1 inhibitor) Phase 2 expected to begin in H2 2018 for hidradenitis suppurativa.

INCB50465 (PI3Kdelta inhibitor) is in Phase 2 for follicular lymphoma, marginal zone lymphoma, and mantle cell lymphoma.

INCB81776 (AXL/MER inhibitor) Phase 1 dose escalation underway for immune-directed cancer.

There are also many candidates in, or about to enter, early clinical trials.

In partnership with Lilly, baricitinib 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.

Itacitinib (JAK 1) is in Phase 3 trials for GVHD, including treatment-naive.

See also Incyte pipeline.

Cost of product revenue was $25 million. GAAP operating expenses were: $293 million for research and development; $97 million for selling, general and administrative expenses; and a $5 million charge for change in value of a contingent consideration. Total costs $419 million. Leaving income from operations of $31 million. Interest and other income was $10 million. Unrealized loss on investment was $10 million. Income tax $2 million.

Q&A Summary:

GVHD sales education, sales force build? Itacitinib? We already added 30 staff to get ready for GVHD and for growth in approved indication. Our educational materials are all prepared, we have already met with physicians. Other GVHD subsets seem likely to be successful, same with itacitinib. Cytopenia spearing effect should be helpful.

Ruxolitinib is generally better tolerated long-term than steroids.

EXMO cholangio data was a positive surprise. Chemo has maybe a 15% response rate. So rates appear to meet regulatory approval levels, maybe breakthrough designation. EU hurdle for single-arm studies is harder.

You get no credit for earlier stage of pipeline. Why keep it so broad? We believe the quality of the science is very good. We may soon have 5 molecules approved. We don't know which molecules in early stage will represent breakthroughs. But most spend is on late-stage molecules.

Inventory draw down? Inventory fluctuates, we think this was a one-time event, probably due to the 3% price increase at the beginning of September. Reversed in October, confident moving forward.

Dermatitis key issues with FDA? Given proof-of-concept: dosing; number of studies (typically 2) and size; active comparator or not. Close to closure, could get the studies going in Q1 2019.

Jakafi patent runs through at least 2027. Most people stay on it a really long time and do really well. So recruiting patients for combinations is not so easy.

We switched from intermittant dosing to continuous dosing in bladder cancer. The hope is for better efficacy, the danger is higher discontinuation rates. We may also do a combination with IO agents.

Pemigatinib competition? Competitors show you are pursuing a good target. The field is busy and we can learn when others are ahead, as with the J&J switch to continous. We think we will be very competitive in bladder and that we are leading in cholangio.

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