Analyst Conference Summary

biotechnology

conference date: February 13, 2020 @ 5:00 AM Pacific Time
for quarter ending: December 30, 2020 (Q4, fourth quarter 2019)

Forward-looking statements

Overview: Good y/y revenue growth, pipeline development. Pemigatinib PDUFA date May 30, 2020. Potential for 3 new product approvals in 2020.

Basic data (GAAP):

Revenue was $579 million, up 5% sequentially from $552 million, and up 10% from $528 million in the year-earlier period.

Net income was $111 million, down 13% sequentially from $128 million, and up 61% from $69 million year-earlier.

Diluted EPS was $0.51, down 14% sequentially from $0.59, and up 59% from $0.32 year-earlier.

Guidance:

2020 revenue is expected to include $1.88 to $1.95 billon for Jakafi and $100 to $105 million for Iclusig. Non-GAAP COGS $107 to $112 million; R&D $1.08 to $1.15 billion; SG&A $447 to $477 million. Excludes impact of MorphoSys collaboration, which has not yet closed.

Conference Highlights:

Hervé Hoppenot, Incyte's CEO, said "As we enter 2020, we have multiple opportunities for additional growth. We recently announced successful initial results from the Phase 3 TRuE-AD program, which we plan to include as part of the NDA in the fourth quarter of 2020 seeking approval of ruxolitinib cream for the treatment of patients with mild-to-moderate atopic dermatitis. We also look forward to the FDA decisions on the potential approvals of pemigatinib and capmatinib later this year."

Achieved 13 of 15 key goals for 2019. But results of Gravitas301 were disappointing.

On January 28, 2020, announced the primary endpoint was met in the Phase 3 trial of ruxolitinib cream for the treatment of atopic dermatitis. Expects the other Phase 3 trial results in Q1 2020, with an NDA in 2H 2020. In Q3 2019 received positive results from Phase 3 trials of ruxolitinib versus best available therapy in steroid-refractory acute GVHD (REACH2). Data from steroid-refractory chronic (REACH3) GVHD trial currently expected to be available in 2H 2020.

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

Non-GAAP numbers: Net income $142 million, down 21% sequentially from $179 million, and flat from $142 million year-earlier. Diluted EPS $0.65, down 22% sequentially from $0.83, and down 1% from $0.66 year-earlier.

Cash and equivalents ended at $2.1 billion, up sequentially from $2.0 billion. Debt $18 million in convertible notes. There is a $282 million acquisition-related contingent consideration liability.

tafasitamab for DLBCL MAA submission expected in 1H 2020, with FDA decision due 2H 2020. This is a collaboration agreement with MorphoSys. In US would split profits 50-50; ex US Incyte to commercialize with tiered royalties to MorphoSys. Will also pursue in CLL and other non-Hodgkin's lymphomas. Closing requires anti-trust approvals.

On January 27, 2020, Eli Lilly (LLY) and Incyte announced that baricitinib met the primary endpoint in BREEZE-AD4, an investigational Phase 3, randomized, placebo-controlled study evaluating the safety and efficacy of baricitinib in combination with topical corticosteroids (TCS) for the treatment of adult patients with moderate to severe atopic dermatitis (AD)

The LIMBER program (Leadership In MPNs BEyond Ruxolitinib), a key development priority, is evaluating multiple monotherapy and combination strategies to deliver improved therapies for patients with myeloproliferative neoplasms. The program has three key areas of focus: new formulations of ruxolitinib; JAK inhibitor-based combinations; and new targets beyond JAK inhibition.

A once-a-day formulation of ruxolitinib is being developed and evaluated in clinical studies. Following positive proof-of-concept data of ruxolitinib plus parsaclisib in myelofibrosis patients with a suboptimal response to ruxolitinib monotherapy, a randomized pivotal trial is being prepared in this setting. Additional JAK-based combinations are either ongoing or in preparation.

INCB39110 (now Itacitinib) Phase 3 GRAVITAS-301 trial for treatment of patients with newly-diagnosed acute GVHD completed enrollment; results are expected ? 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 with results expected in 2021. An NSCLC combination trial is in Phase 1/2.

Pemigatinib (INCB54828) for cholangiocarcinoma and bladder cancer data presented at ESMO showed promising efficacy. The NDA seeking approval for pemigatinib as a second-line treatment for cholangiocarcinoma patients with FGFR2 fusions or rearrangements was submitted to the FDA in November 2019 under Breakthrough Therapy designation. 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 initiated a pivotal tumor-agnostic trial evaluating pemigatinib in patients with driver-activations of FGF/FGFR in Q3 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.

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 $32 million. GAAP operating expenses were: $313 million for research and development; $136 million for selling, general and administrative expenses; and a $3 million charge for change in value of a contingent consideration. Total costs $484 million. Leaving income from operations of $95 million. Interest and other income was $15 million. Unrealized gain on investment was $16 million. Income tax $15 million.

Full year 2019 revenue was $2.16 billion. GAAP net income $447 million, diluted EPS $2.08. Non-GAAP net income $615 million, diluted EPS $2.83.

Q&A Summary:

Topical Rux possible box warning? Data so far shows there is no systemic exposure, so we do not think we will get a box warning, but it is up to the FDA.

More M&A possible? Business strategy has not changed, continuing to look for external assets. We ended year with $2.1 billion cash, proforma $1.1, so we can keep looking.

281 results will come this quarter, expected to be in line with 282, we need to save the results for release at a future meeting.

Jakafi reset study end of recruitment? Study design was complicated, complicated endpoint, problem with recruiting patients.

Not seeing enough effectiveness in Sjogren's to continue to a registrational trial. Other indications offer better opportunities.

Operating margins going forward? In 2019 and in 2020 guidance looking to continue to invest in R&D, but expenses should grow slower than revenue.

We are preparing cholangiocarcinoma education programs. The teams have already been trained to be ready to sell.

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