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Paul Friedman - President and CEO

Jim Daly - Chief Commercial Officer

Analysts

Cory Kasimov - JP Morgan

Incyte Corporation (INCY) 31st Annual J. P. Morgan Healthcare Conference Transcript January 7, 2013 11:30 AM ET

Cory Kasimov - JP Morgan

All right. Good morning, everybody. We’ll keep going here. It is my pleasure to introduce our next company. My name is Cory Kasimov. I’m Biotech Analyst at JP Morgan. And up next is Incyte. We are going to have a little tag team from Incyte today. We have both the President and CEO, Paul Friedman, who’s going to start us off and then he is going to be followed by the Chief Commercial Officer, Jim Daly, who will talk about some of the launch metrics for Jakafi, who I’m sure all of you are keenly focused on. Following this presentation, we will be moving across the hall for the breakout into the Georgian Room.

So with that, I will turn it over to Paul. Thanks.

Paul Friedman

Yeah. Thanks, Cory. Good morning to everyone. Before I start please note that Safe Harbor rules govern our remarks and forward-looking statements, and we ask that you review our latest SEC filing, including our most recent 10-Q, September of last year for summary of risk factors that may cause actual results to differ materially from any forward-looking statements.

Now, we think Incyte is in a very strong position. We have an approved product Jakafi. It’s been doing well on the market for more then a year. It’s providing benefits to patients with debilitating progressive myelofibrosis.

We are about more than one product. Thanks to our extensive R&D efforts. We have robust pipeline, including additional potential indications for Jakafi that we are confident will enable us to succeed as a growing biopharmaceutical company.

And that said, we appreciate that investors want to know what we are doing with Jakafi now and in the near-term. And with that in mind, I’m going to focus my remarks today primarily on Jakafi for intermediate or high-risk myelofibrosis and then Jim Daly, our Chief Commercial Officer is going to discuss how we are executing on the long-term Jakafi opportunity and he’ll close with a look forward for this year.

In 2003 we initiated an R&D program to explore the inhibition of enzymes called Janus Associated Kinase or JAKs for short. The JAK STAT pathway is involved in normal immune function and it had hematopoiesis, but when it becomes constitutively activated or dysregulated, it starts to play a key role in the number of cancers and chronic inflammatory conditions. It was an area of research where we thought our core competency in medicinal chemistry might lead to proprietary compounds and important new medicines.

Ruxolitinib was synthesized in 2005 and in just six years we indeed took the concept and delivered an improved product. In November of ‘11, the lead JAK 1 JAK 2 inhibitor Jakafi known generically as ruxolitinib was approved for use in patients with intermediate or high-risk myelofibrosis. It was the first FDA approved JAK inhibitor for any indication and the first product approve for use in myelofibrosis is also our first approved product.

We see our lead JAK program is a clear path to commercial success, first with Jakafi and myelofibrosis, and potentially other myeloproliferative neoplasm, as well as additional hematology/oncology indications.

We’re studying Jakafi in the Phase III trial in polycythemia vera. It is now fully recruited, which keeps us on track for an sNDA filing in the first half of 2014. We look forward also to results in the second half of this year from an already fully recruited Phase II trial studying Jakafi in patients with pancreatic cancer.

Next, we see potential approvals for our second JAK 1 JAK 2 inhibitor baricitinib, which is licensed to Lilly in multiple chronic inflammatory conditions starting with rheumatoid arthritis. The Phase III RA program began in November as a result from the Phase IIb trial were being presented at ACR.

These results coupled with a well-designed Phase III program give us confidence that baricitinib has the potential to be position as best-in-class in RA. The compound is also being explored for the potential to treat psoriasis and diabetic nephropathy.

Jakafi and baricitinib form the foundations from two key commercial partnerships with Novartis, ex U.S. and Lilly respectively. As I’ve said, our knowledge of and commitment to this space extends well beyond these two compounds and we look forward to advancing our earlier stage JAK inhibitors to further expand the therapeutic potential of the JAK inhibitor class as a whole and ensure Incyte retains a leading position in this space.

In addition to the JAK program, we have other compounds in development, attesting to our core competency in R&D and this supports my confidence that additional important new medicines will emerge from our pipeline allowing us to build significant and sustainable value for our shareholders.

We also have a strong cash position in multiple sources of cash flow, including milestone payments, product sales and royalties. In this regard, we ended the third quarter with approximately $244 million in cash, excluding $9.5 million of restricted cash held in escrow for interest payments through October on our senior convertible notes.

Our net product revenue for the three months ended September 30, 2012 was $43.7 million. As a result of our transition from the sell-through our revenue recognition method to the sell-in method in the third quarter included in that product revenue for the third quarter is $9 million, a previously deferred revenue from product shipped to our specialty pharmacy customers prior to June 30, 2012.

Net product revenues for the nine months ended September 30, 2012 were $92.7 million and we tightened our guidance from 2012 to a range of $130 million to $135 million, which represents the upper end of the guidance we’ve provided on our second quarter call. We’ll provide financial guidance for 2013 during our fourth quarter year end call.

As I said in my opening remarks, long-term value is important, but Jakafi represents our immediate opportunity to have a positive impact on patients. Our vision and objectives are to bring Jakafi as the standard-of-care for intermediate and high-risk MF patients to as many appropriate patients as possible.

In 2013 we’ll continue to encourage physicians to initiate Jakafi for appropriate new patients, and help physicians and patients successfully continue Jakafi as long as they show a positive risk benefit. We have strong data that through scientific exchange and separate marketing efforts should enable us to achieve these goals.

Now, before I turn things over to Jim, I’m going to share highlights of some quite important data presented last month at the American Society of Hematology annual meeting and I’m going to start with the two COMFORT studies.

The updates of these two registration studies presented at ASH were based on data after all patients completed two years on study and after all control arm patients remaining on the starting had crossed over to Jakafi.

The long-term results from COMFORT-I presented at ASH showed that continued use of Jakafi gave durable reductions in spleen volume, durable improvements in quality of life measures and as shown on this slide, improve survival, suggesting an overall survival benefit.

The increase survival has been maintained for more than two years, even though all patients randomized to placebo still on study had been crossed over to Jakafi for more than a year, emphasizing the importance of early treatment of patients with intermediate or high-risk myelofibrosis. In addition to providing a rational for earlier use, we believe the prospect of improve survival will motivate physicians to keep their patients on Jakafi longer.

Complementing the COMFORT-I long-term follow-up is this slide presented at ASH showing the COMFORT-II two-year follow-up, as in COMFORT-I all patients in the comparator arm, here originally randomized the Best Available Therapy or BAT who remained in the study have been crossed over to receive Jakafi in consistent with COMFORT-I at this two-year follow-up there is an increase in survival for patients initially randomized to Jakafi, compared to those randomized to BAT, again showing the benefit of starting therapy with Jakafi early.

These data from COMFORT-II are important for at least two reasons. First, we now have both of the randomized trials showing improved survival over their respective comparators. And second, this improved survival in COMFORT-II is being observed over other therapies that prescribers might consider.

We expect that when physicians become aware of these data from both COMFORT studies, they are likely to have more interest in using Jakafi in patients with intermediate or high-risk MF to begin treatment in these patients earlier and to titrate the dose with the aim keeping patients on drug longer.

Now, talk a little bit about titration, data presented at ASH show, how dose titration can indeed enable physicians to achieve the treatment goals they’ve set. Over the next several slides I’ll show you data demonstrating that titrating down to a 10 mg dose BID provides comparable efficacy for spleen and symptoms, generally avoids anemia and thrombocytopenia and is still associated with a robust survival advantage.

Depending on baseline platelet count, the starting doses in each of our COMFORT trials and indeed recommended for labeling, our -- in labeling, our 15 mg BID and 20 mg BID doses. Most of the patients in the two COMFORT trials titrated down by an average of 5 milligrams BID in the first six months and shown here data for COMFORT-I.

The downward dose titration resulted in dropout rates for anemia or for thrombocytopenia of less than 1% while demonstrating clear patient benefit with 42% receiving Jakafi versus less than 1% receiving placebo obtaining at least 35% reduction in spleen volume by 24 weeks and 46% versus 5% respectively, obtaining at least a 50% improvement in the total symptom score or TSS at that point in time. And as I’ve shown your earlier an improvement in survival.

Because these doses were titrated, we can look at the safety and efficacy effects of titrating to different dose levels. And so here we see that patients who titrated to 10 milligrams BID shown in red had spleen size reduction that approximates that of higher doses at 24 and 48 weeks is clearly better than placebo. Especially if you look at the 48-week data, it’s pretty obvious that you get essentially the same spleen reduction.

The total symptom score shown on the right which includes both symptoms related to splenomegaly as well as symptoms related to the elevated levels of inflammatory cytokines improved just as much at 10 milligrams BID as at higher doses. This is a, I think, a very significant slide. As has been observed in our clinical trials and shown here specifically for COMFORT-I while many patients who started therapy at either 15 milligrams or 20 milligrams experienced a drop in hemoglobin during the early phase of therapy with nadir seen around eight to 12 weeks.

Over the ensuing weeks, compensatory mechanisms to begin operate to bring hemoglobin levels back toward baseline. Now here shown in red, we look particularly at those patients who were titrated down to the dose of 10 milligrams BID by week eight. You can see that these patients not only have a fast return of hemoglobin but on average, they get back to their baseline value or better. While patients who continue at the higher doses, reach a new steady-state on average only about 5% to 10% below baseline.

Now as I just showed you in COMFORT-I, all patients started at 15 milligrams or 20 milligrams BID and many had already developed some degree of lower hemoglobin or platelets before their doses were titrated down.

Study 258 starts to address the question as to what might have been if patients started at lower doses. In this study, where patients had baseline counts between 50,000 and 100,000, the starting dose was 5 milligrams BID and about 85% of patients titrated up to a dose of 10 milligrams BID by week 24. Very few patients received doses higher than 10 in this study.

And what you see here in this study the benefits of spleen size reduction and improvement in symptoms were comparable to the results seen in the COMFORT trials. And on this slide, you can see that the average hemoglobin level shown in green did not change over time, similar to placebo in COMFORT-I, which is shown as a dash line and different from the nadir seen at eight to 12 weeks with subsequent improvement when patients started on higher doses in COMFORT-I that is shown in the solid black line.

In the same study, we looked at platelet counts over time and here we saw that on average patients titrated to try and make BID dose shown in green had essentially no change in platelet counts.

Now, turning back to COMFORT-I, we see that survival in that study, you can see the dark blue, black line, survival in that study after all patients had completed two years was as good for patients titrated to 10 milligrams BID as for patients titrated to higher doses. This is a very important piece of information as physicians who want to be reassured that if they titrate to 10 milligrams BID, they should still expect to maintain efficacy, including a potential survival benefit while reducing the possibility of new or worsening anemia or thrombocytopenia.

So to summarize, titrating to 10 milligrams BID, which was done very frequently in the COMFORT study may be appropriate for most patients. While the data I’ve shown you are based on averages, individual patient responses to any dose level can vary both in terms of effects on cell counts and on efficacy. And therefore higher doses may be appropriate for patients who don’t develop new or worsening anemia and thrombocytopenia but who also don’t achieve a desired level of therapeutic benefit.

Now, I focus on the compelling data for Jakafi and how the medical and scientific communities continuing to further understand the use of the drug in the treatment of MF, I’m going to turn things over to Jim now who can address how we intent to execute on the Jakafi opportunity and help MF patients receive maximum long-term benefit from Jakafi.

Jim Daly

Thank you, Paul. Good morning, everyone. I’m delighted to be here and I think our mission for 2013 and beyond is pretty clear based upon that data. Our job is to take that compelling data and translate it into substantial patient benefit and long-term growth for Jakafi, so that’s -- I’d like to give you a sense for how we’re going to do that today. But before I do, I want to give you a sense for how we did in 2012.

So physicians we have more than a third of our target physicians having prescribed Jakafi in 2012. We have a third of them with multiple patients on the product, future intent to prescribe is very high for both users and non-users. Our patient advocacy efforts have been highly effective in raising awareness and educational activities around MF and we’ve seen patients actively seek out treatment.

In terms of payers, we have been able to establish a relatively hassle-free reimbursement environment for Jakafi. About three quarters of our patients require prior authorization. The vast majority of those prior authorizations are entirely consistent with our approved product labeling. So it’s not an issue for physicians to get the product for their patients.

Our patient assistance program has provided a very effective safety net to make sure that patients who need this product are able to get it irrespective of ability to pay. So all in all, I would say that we built a very solid foundation for long-term growth for Jakafi in 2012. As a matter of fact, as Paul indicated, we increased -- we narrowed our full-year guidance in the third quarter to the upper end of the range, $130 million to $135 million.

I’m very pleased to report that we ended the year on a strong note. We have steady underlying growth in underlying demand and we’re entering 2013 with very solid momentum. So let’s talk about ‘13 and beyond. Our strategy is not very complicated. We did not hire McKinsey or BCG to help us out with this one, all right. We’ve got two drivers here.

One is to grow patient starts, we’re going to do that by convincing physicians to use Jakafi earlier in the course of the disease. And we’re going to keep patients on therapy longer by educating physicians on appropriate dose titration as Paul outlined for us a few minutes ago.

So that’s a strategy. At this point, it’s all about execution. And to give you a sense for what that execution looks like, this is a map of the time course of myelofibrosis and where Jakafi is currently being used. So myelofibrosis is a chronic, debilitating progressive disease that inexorably worsens. That’s just the nature of the disease. So physicians before the availability of Jakafi, physicians were conditioned to manage myelofibrosis with a watch-and-wait approach.

And typically that watch-and-wait approach was very palliative in nature. When they would intervene, patients were severe. They were refractory and often times intervention would simply be transfusions, either platelets or red cells. So now Jakafi is launched and not surprisingly, the bulk of our early patients were those severe obvious refractory patients. They tended to be transfusion dependent. They had huge spleens, severe constitutional symptoms. They were the worst of the worst.

The good news is that the vast majority of those patients experienced very meaningful response on Jakafi. They saw dramatic reduction in spleen size. They saw dramatic improvement in symptoms. These symptoms are bone pain, fatigue, fevers, night fevers and Jakafi was able to make a profound difference in these patients’ quality of life.

So the opportunity we have is to drive that usage from the right to the left. And to give you a sense of how we’re going to do that, the data you just heard there is nothing more exciting than a company going to ASH or going to ASCO and been able to present data like Paul just presented.

That’s what this business is all about and that data is already changing physician treatment behaviors. So there is three buckets of behaviors; treatment goals, why do you use the drug; treatment triggers, when do you use the drug and treatment expectations how do you use the drug.

So what we’re seeing in the marketplace today is the treatment goal is shifting from palliation to disease modification. The treatment triggers are shifting from intervening only late when the patient has precipitous drop in blood count to intervening in an earlier stage in order to address symptoms.

And finally we are focused very intensely on reshaping physician attitudes toward two particular issues, one is cytopenias and the key point here is that disease-related cytopenias are not the same as drug-related cytopenias. Drug-related cytopenias for the most part are manageable, largely avoidable. They’re not an indication of lack of efficacy and these certainly are not a reason generally for patients to discontinue the drug.

So we are reshaping the way physicians look at cytopenias and part of that is the way they look at dosing. So we are moving physicians from a less individualized approach to a more individualized approach particularly within the first eight to 12 weeks, and we’re seeing that change already being embedded into the marketplace. We’re seeing traction with the titration as evidenced by the dose mix. Every month we’re seeing a higher and higher proportion of the lower dose is being used for Jakafi.

So here the volume drivers, these are the factors that will drive prescription volume in 2013. We’ve got the survival data. It’s not on the label currently, but it is being communicated through some channels of scientific exchange and those are powerful in terms of changing practice patterns.

We have a great opportunity to educate physicians on the difference between a pathways specific treatment which Jakafi is and a mutation specific treatment which is not. The limits of Jakafi are not limited to those patients who are JAK mutation positive. Patients with myelofibrosis mediated through JAK in JAK override will benefit from Jakafi.

And finally positive experience, positive experience is autocatalytic in oncology and we have a critical mass of positive experience built in 2012. On the other driver, dose titration peer-to-peer, peer-to-peer will accelerate the learning process, especially for titration.

IncyteCARES is our patient hub, primarily focused on reimbursement but it’s also turned out to be a terrific tool to keep patients on drug longer through personal communication with the patient. So we are in intensifying those efforts as we speak.

And survival data is a two for motivation, it’s a powerful motivation to start patients earlier, it’s also a powerful motivation to keep patients on the drug and work through a short titration phase.

So what a success look like, this is what success looks like, when you have more patients on the drug earlier for a longer period of time and we are very confident that we’re going to translate this slide into reality, because its very rare when an oncologist is able to use a product that not only increases quality of life but increases quantity of life and that’s the driver for this treatment shift.

And I think these pictures are self-evident that the treatment effect for this product really is robust. It really is dramatic. This is not a subtle drug nor are the hazard ratios that Paul showed. This is a drug that really, really works and I’ve never seen a drug that really, really works get niched to a falsely compact subset of patients. This use will grow more broadly overtime without a doubt.

So, wrapping up, we’ve been focused on Jakafi because you got a limited amount of time. But Jakafi in myelofibrosis is only the beginning. We are excited to look at the PV data in early ‘14, can’t wait to look at the data with Jakafi in pancreatic cancer.

We think that Lily has a real winner on their hands with baricitinib in rheumatoid arthritis. And by the way, if you have a winner in RA, you have a big, big product and we are their biggest cheerleader because we will share a very nice chunk of the upside through our royalty agreement. And we’re also excited by our earlier stage oncology pipeline, looking at inhibition of c-Met as well as IDO.

So, bottom line, R&D at Incyte is remarkably productive and for that reason, we are absolutely convinced that we’re going to be going to ASH meetings and ASCO meetings, and other information meetings for many years to come and presenting new data, new indications, and new products that will make a profound difference for patients.

So, with that, I’ll thank you for your time and your interest in our business.

Question-and-Answer Session

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