Analyst Conference Summary

biotechnology

conference date: February 14, 2019 @ 9:00 AM Pacific Time
for quarter ending: December 30, 2018 (Q4, fourth quarter 2018)

Forward-looking statements

Overview: Continued strong revenue growth.

Basic data (GAAP):

Revenue was $528 million, up 17% sequentially from $450 million, and up 19% from $444 million in the year-earlier period.

Net income was $69 million, up 138% sequentially from $29 million, and down from negative $150 million year-earlier.

Diluted EPS was $0.32, up 129% sequentially from $0.14, and up from negative $0.71 year-earlier.

Guidance:

For the full year 2019 product revenues expected are: Jakafi $1.58 to $1.65 billion; Iclusig $90 to $100 million. Cost of product revenue $112 to $117 million GAAP; $90 to $95 million non-GAAP. R&D expense $1.185 to $1.255 billion GAAP, $1.03 to $1.10 billion non-GAAP. Sg&A expense $471 to $521 million GAAP; $420 to $470 million non-GAAP. Acquisition-related change in fair value $30 million GAAP, zero non-GAAP. No guidance on milestone or royalty revenue. Expects non-GAAP operating income of $350 to $450 million.

Conference Highlights:

Hervé Hoppenot, Incyte's CEO, said "We continue to work with the FDA to facilitate the review of the GVHD indication. Our late-stage product portfolio provides us with multiple additional opportunities to accelerate revenue growth. Our submission to the FDA seeking marketing approval of pemigatinib in patients FGFR2 translocated cholangiocarcinoma is expected later this year, as is the submission, by Novartis, for the approval of capmatinib in patients with MET exon-14 skipping non-small cell lung cancer. Results from the pivotal trial of itacitinib in newly-diagnosed GVHD patients are expected later this year, as are the results of two additional pivotal trials of ruxolitinib in patients with steroid-refractory GVHD, as well as proof-of-concept data from the trial of ruxolitinib cream in patients with vitiligo."

Believes long-term Jakafi revenue potential is $2.5 to $3.0 billion per year.

Ready to launch for GVHD if approved.

Non-GAAP numbers: Revenue was $468 million, up 25% from $374 million year-earlier. Net income $87 million, up 5% sequentially from $83 million, and up from $4 million year-earlier. Diluted EPS $0.40, up 5% sequentially from $0.38, and up from $0.02 year-earlier.

Cash and equivalents ended at $1.4 billion, flat sequentially from $1.4 billion. Debt $17 million in convertible notes. There is a $287 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.

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. PDUFA date has been delayed to May 24, 2019. REACH3 and REACh2 Phase 3 trials for the chronic GVHD results are expected in 2H 2019. 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 in 2019. An NSCLC combination trial is in Phase 1/2.

Pemigatinib (INCB54828) for cholangiocarcinoma and bladder cancer data presented at ESMO showed promising efficacy. Expects to file with FDA in Q3 2019 for cholangiocarcinoma. The Phase 2 trial for bladder cancer with FGFR pathway alterations is recruiting patients with a Phase 3 trial expected to launch in 2019. Incyte plans to initiate a pivotal tumor-agnostic trial evaluating pemigatinib in patients with driver-activations of FGF/FGFR later in 2019.

Paraclisib (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. Also 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 12 compounds currently in proof-of-concept trials.

In partnership with Lilly, baricitinib is in trials for atopic dermatitis, psoriatic arthritis, and lupus. Lupus data

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 $26 million. GAAP operating expenses were: $304 million for research and development; $108 million for selling, general and administrative expenses; and a $7 million charge for change in value of a contingent consideration. Total costs $446 million. Leaving income from operations of $82 million. Interest and other income was $11 million. Unrealized loss on investment was $22 million. Income tax $2 million.

Q&A Summary:

Volume v. price growth in 2019? 14% to 19% net sales. We took a 4% price increase at the end of 2018, so the rest is volume.

GVHD revenue in 2019? Possibly $80 million with approval.

Life-cycle strategy? 2027 or 2028 patent protection. We are working on new formulations, including SR. We are working on combination therapies for myelofibrosis. We are also looking at new molecular targets.

Topical ruxolitinib? Both Phase 3 studies are recruiting, for mild to moderate patients. The target population is in the millions.

Jakafi by type? MF are about 60%, PV about 40%, with PV growing at twice the rate.

Oral PDL1 inhibitor could report data at a meeting this year.

Cash use? As we pursue revenue growth our cash could be used to add to our late stage commercial portolio.

Gross to net increase? It is due to the government rebates like Medicaid and the VA. But in Q1 it jumps to 70% for Part D patients, which pharma picks up.

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