Analyst Conference Summary

biotechnology

conference date: July 30, 2019 @ 5:00 AM Pacific Time
for quarter ending: June 30, 2019 (Q2, second quarter 2019)

Forward-looking statements

Overview: Strong product revenue and profit growth, increased guidance,

Basic data (GAAP):

Revenue was $530 million, up 6% sequentially from $498 million, and up 2% from $522 million in the year-earlier period. Q2 2018 included $100 million milestone revenue, while Q2 2019 included $20 million.

Net income was $105 million, up 3% sequentially from $102 million, and up 102% from $52 million year-earlier.

Diluted EPS was $0.48, up 2% sequentially from $0.47, and up 100% from $0.24 year-earlier.

Guidance:

Increased full year 2019 guidance to: Jakafi product revenue $1.61 to $1.65 billion. Expenses unchanged.

Conference Highlights:

Hervé Hoppenot, Incyte's CEO, said "Revenue growth continues to be strong, and we are pleased that Jakafi is also now available as an approved therapeutic option for patients with steroid-refractory acute GVHD. In addition, we made good progress across our development portfolio during the quarter, including presenting data from the Phase 2 trial of ruxolitinib cream in patients with vitiligo at the World Congress of Dermatology which drove our decision to advance the program into pivotal development. We remain on track to file a New Drug Application seeking approval of pemigatinib in cholangiocarcinoma in the second half, and we look forward to announcing the results of multiple pivotal trials of ruxolitinib and itacitinib in GVHD by year-end. In summary, we continue to execute on our key strategic goals of further diversifying our revenue base and driving sustainable long-term growth."

Launch for Jakafi for steroid refractory acute GVHD began after FDA approval in May 2019. Initial feedback is good. Randomized Phase 3 trials of ruxolitinib versus best available therapy in steroid-refractory acute (REACH2) and steroid-refractory chronic (REACH3) GVHD, respectively, are currently expected to be available by the end of 2019.

The primary endpoint was met in the Phase 2 trial of ruxolitinib cream for the treatment of vitiligo; preparations now underway for a Phase 3 trial to begin by the end of 2019.

Jakafi royalty revenue is from sales by Novartis outside the U.S.

Non-GAAP numbers: Net income $162 million, up 20% sequentially from $135 million, and up 19% from $136 million year-earlier. Diluted EPS $0.75, up 19% sequentially from $0.63, and up 19% from $0.63 year-earlier.

Cash and equivalents ended at $1.7 billion, flat sequentially from $1.70 billion. Debt $18 million in convertible notes. There is a $286 million acquisition-related contingent consideration liability.

Incyte no longer participates in the co-funding of the development of baricitinib, but will continue to receive royalties. This means it will receive less of the incremental portion of royalties based on that co-funding, but the base tiered royalties are expected to grow over time. The atopic dermatitis trial is in Phase 3. Baricitinib is licensed to Ely Lilly; Incyte receives royalties.

Jakafi for essential thrombocythemia Phase 2 trial RESET is ongoing.

INCB39110 (now Itacitinib) Phase 3 GRAVITAS-301 trial for treatment of patients with newly-diagnosed acute GVHD completed enrollment; results are expected before the end of 2019. If successful, Incyte expects to submit applications for itacitinib in major markets globally. GRAVITAS-309, a Phase 3 trial of itacitinib as a treatment for patients with newly-diagnosed chronic GVHD, was launched in January of this year. 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 2H 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.

Parsaclisib (INCB50465) the selective PI3Kδ inhibitor as monotherapy in patients with diffuse large B-cell lymphoma (DLBCL), continued the Phase 2 CITADEL 203, 204 and 205 trials (for follicular, marginal zone, and mantle cell lymphomas, respectively). Also in combination therapy with Jakafi.

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

INCB86550, an oral PD-L1 inhibitor, has entered Phase 1.

MCLA-145, a PD-L1 by CD137 bispecific antibory should enter Phase 1 in Q2 2019.

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 underway for hidradenitis suppurativa.

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

There are 12 compounds currently in proof-of-concept trials.

Capmatinib, Incyte’s potent and selective c-MET inhibitor, for the treatment of patients with non-small cell lung cancer (NSCLC) harboring MET exon 14 skipping mutations, is partnered with Novartis, which anticipates submitting an NDA in 2019. Updated data was presented at ASCO.

See also Incyte pipeline.

Cost of product revenue was $29 million. GAAP operating expenses were: $289 million for research and development; $106 million for selling, general and administrative expenses; and a $7 million charge for change in value of a contingent consideration. Total costs $431 million. Leaving income from operations of $99 million. Interest and other income was $15 million. Unrealized loss on investment was $5 million. Income tax $3 million.

Q&A Summary:

Is Jakafi for GVHD a growth driver or more of a place-setter for itacitinib? Access has not been a problem. We are seeing Jakafi for GVHD moved from 4th line to 2nd line, and seeing more specialty distributor orders. This year GVHD could generate $80 million. That is a growth driver, but it is prepping the way for itacitinib.

Price reform? About 50% of Jakafi sales are to Medicare. But we know there are people on Medicare who are not taking Jakafi because of the copays. We hope reform will reduce copays, as in the Senate draft. It is hard to quantify any effect. Because we have many new products coming to market in the next ten years we think reducing copays will give more people access to our medicines.

Iticitinib Phase 3 GRAVITAS-301 for GVHD? Powered to show a 16% overall increase in ORR and a 40% relative reduction in non-relapse mortality at 6 months. We need to achieve both endpoints to do a submission, but the proof-of-concept trial easily did those.

Atopic dermatitis adult market? Covers mild to moderate patients 12 year or older. Once we have safety data we want to study younger patients, but most patients are adults. Body surface limits are practical in nature, covers the majority of patients.

Length on Jakafi, if Fedratinib is approved? We believe patients will stay on Jakafi as long as they see benefit. Compared to other JAK inhibitors, we believe Jakafi is best in class and should remain the starting therapy.

Given cheap generics for GVHD, what kind of efficacy do you need for Iticitinib for your pricing premium? We are adding to the cheap generic steroids. The 16% ORR goal should get us to premium pricing. We can mainly use our current US sales force.

Lymphoma trials are enrolling well, should complete in 2019. It is a crowded space for therapies, but the lymphomas still have areas of unmet need.

Reach3 for chronic GVHD? We are not giving out specific plan or powering assumption. Randomized against best available therapy, but selective. It has to beat those therapies.

Topical drug premium pricing, how possible? In vitilago we are first in class, in dermatitis there is a lot of competition. We need more data before we price the topical form of the drug. Vitilago looks like it is far better than alternatives, so premium pricing is easier to see there.

Bladder cancer opportunity v. J&J? You are right they are there first, about 15,000 patients globally, they have a different tolerability profile, we hope to have efficacy with better tolerability. We will also do a first line study in this indication, and they are not so far.

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