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Incyte Corporation (NASDAQ:INCY)

Q4 2012 Earnings Call

February 14, 2013 8:30 am ET

Executives

Pamela Murphy - VP, IR & Corporate Communications

Paul Friedman - President & CEO

Jim Daly - EVP & CCO

Dave Hastings - EVP & CFO

Rich Levy - EVP, Chief Drug Development & Medical Officer

Analysts

Matt Roden - UBS

Boris Peaker - Oppenheimer

Matt Lowe - JP Morgan

Rachel McMinn - Bank of America-Merrill Lynch

Eric Schmidt - Cowen & Company

Do Kim - Piper Jaffray

Salveen Richter - Canaccord Genuity

Brian Abrahams - Wells Fargo

Thomas Wei - Jefferies & Co

Ying Huang - Barclays

Bret Holley - Guggenheim Partners

Operator

Greetings, ladies and gentlemen, and welcome to the Incyte Corporation's Fourth Quarter and Year End 2012 Earnings Call. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Ms. Pamela Murphy, Vice President Investor Relations and Communications. Thank you; Ms. Murphy, you may now begin.

Pamela Murphy

Good morning and welcome to Incyte's fourth quarter 2012 conference call. With me today are Paul Friedman, Incyte's President and Chief Executive Officer; Jim Daly, Executive Vice President and Chief Commercial Officer; Dave Hastings, Executive Vice President and Chief Financial Officer; and Rich Levy, Executive Vice President, Chief Drug Development and Medical Officer.

The agenda for the call is as follows. Paul will begin with a brief overview of the quarter and full year, particularly regarding the launch of Jakafi and share what we expect in terms of product revenues for 2013. Jim will follow with a full update on the launch and ongoing commercialization of Jakafi. Paul will then provide more detail on the pipeline followed by Dave who will describe our fourth quarter results and 2013 [Sic] financial guidance. After that we will open up the call for Q&A.

Before beginning, we like to remind you that some of the statements made during the call today are forward-looking statements, including statements regarding our expectations for the commercialization of Jakafi, our development plans, and other indications, and our 2013 financial guidance. These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially including those described in our Form 10-Q for the quarter ended September 30th, 2012, and from time-to-time in our SEC documents. Paul?

Paul Friedman

Good morning. We'll start the call talking about Jakafi. But you can see from our financial guidance for R&D expenses that we're investing in much more than one product. Thanks to our extensive R&D efforts we have a robust pipeline that includes additional potential indications for Jakafi, as well as potential indications in inflammatory diseases such as rheumatoid arthritis for our second JAK1, JAK2 inhibitor Baricitinib, which is being developed as part of our partnership with Lilly, who are also continuing to invest in our early stage program including our proprietary JAK1 inhibitors.

We're confident that our pipeline will enable us to succeed as a growing biopharmaceutical company. That said, we certainly appreciate you wanting to hear upfront about the status of Jakafi for myelofibrosis. In 2012, we build a solid foundation for Jakafi as the first approved treatment for patients with intermediate or high risk MF. Through the year, we saw consistent and growing number of physicians use Jakafi and we saw consistent and growing number of patients benefit from treatment with Jakafi.

Given these trends, we expect to see steady growth in treating this MF population over the next several years, and for 2013 we've set our net product revenue guidance in the range of $210 million to $225 million. This range reflects our expectations of the ongoing evolution of the myelofibrosis market including more physicians initiating Jakafi; renew appropriate patients and more physicians and patients successfully continuing Jakafi therapy as long as they experience clinical benefit.

I'm going to now turn the call to Jim, who will further describe how our guidance represents a continuing sustainable demand.

Jim Daly

Thank you Paul, and good morning everyone. Our growth strategy for Jakafi MF to add new patient starts at a health rate, while keeping patients on treatment longer, yielded strong results in the fourth quarter. I'd like to thank our commercial and medical teams for their tireless efforts in educating physicians on the optimal use of Jakafi to benefit patients with intermediate or high risk MF.

In terms of our quarter-over-quarter growth, when you exclude the $9 million in deferred revenue recognized in the third quarter, the adjusted net revenues grew by 25%, with the following components of growth. Underlying demand, as measured by dispensed bottles grew 17%, inventory 4%, price 4%. In the fourth quarter, new patient starts remained relatively stable, and our favorability to revenue guidance is attributable to early signs of improved persistence.

We continue to see increasing use of lower dosage strengths, which are driven by physicians individualizing treatment, in particular by starting patients at appropriate doses and titrating downward as necessary. Our market research indicates that dose titration leads to increased persistence. The increased use of lower dosage is a direct result of our educational efforts in increased physician experience with Jakafi. And we expect this trend to continue in 2013, driven by rapid and appropriate follow-up by our field sales and medical teams with new prescribers, enhanced outreach the patients through our IncyteCARES Patient Support Program, and specialty pharmacies, and the publication of additional dose titration data from ASH.

ASH was an important meeting for Jakafi. Not only did the meeting present additional new data to support individualized dosing, but also presented data on overall survival. This new information should help to motivate physicians to indentify additional appropriate MF patients in the practice and to work to keep them on treatment.

Additionally, we now have data from our studies of patients with low platelet counts and we expect additional information in our label sometime in the second quarter that will provide greater clarity on starting dose for these patients.

Our 2013 guidance reflects our confidence that we've substantial growth opportunities and meaningful catalyst at both the physician and the patient level. 12 months post launch we continue to see a steady increase in new prescribers and we continue to see an increase in the number of physicians prescribing Jakafi for multiple patients, with one-third of prescribers having written for two or more patients. Currently, roughly have of new patient starts come from new prescribers with the remaining half coming from repeat prescribers. We are confident in our ability to continue to increase both breadth and depth of physician prescribing in 2013. At the patient level, we continue to believe that the total population of patients with MF is between 16,000 and 18,500. And our addressable population of diagnosed intermediate or high risk MF patients is approximately 15,000.

Growth opportunities at the patient level include the following. Educate and motivate physicians to identify appropriate new patients including, those who are Jakavi patient negative, but are still indicated and will benefit from Jakafi. Restart discontinued patients at a lower dose where appropriate and maintain patients on Jakafi longer to individualize dosing and titration especially during the first 8 to 12 weeks of treatment.

Our guidance of $210 million to $225 million reflects consisting growth in dispense bottles, largely driven by new patients, and a realistically achievable improvement in length of treatment for continuing patients versus 2012. Furthermore, we anticipate that these market dynamics will enable consisting growth for Jakafi well beyond 2013 and at least until our next potential growth driver the PV indication.

With that I'll turn it back to Paul.

Paul Friedman

Okay. Thank you, Jim. While we're the first approved therapy in myelofibrosis, Jakafi has potential in additional hematologic settings, as well as in solid tumors. The most advanced of these settings and trials are in polycythemia vera and in pancreatic cancer. And we're studying Jakafi in two Phase III trials in PV.

The first trail response being conducted under an SPA in partnership with Novartis is now fully recruited, which keeps us on track to submit a supplemental NDA in the first half of 2014. The FDA has granted fast track designation for PV and that's specifically for the treatment of patients who are resistant to or intolerant of hydroxyurea.

The second trial in PV is called RELIEF, and it's evaluating symptomatic benefit. The study is not required for FDA approval but we intend to submit results to support labeling claims on symptomatic benefit in PV. And beyond MF and PV, we're looking forward to results in the second half of 2013 from an already fully recruited Phase II trial studying Jakafi in patients with pancreatic cancer in which overall survival is the primary endpoint.

Looking at our second JAK1, JAK2 inhibitor Baricitinib, which is licensed to Lilly, we see significant potential value in multiple chronic inflammatory conditions starting with rheumatoid arthritis. The Phase III RA program began in November of 2012 at the time that the results of the Phase IIb trial were being presented at the American College of Rheumatology Annual Meeting.

These results coupled with a well-designed Phase III program give us confidence that baricitinib has the potential to be positioned as best-in-class in RA. Baricitinib is also being explored for its potential to treat psoriasis and diabetic nephropathy and Lilly is conducting Phase II trials for both conditions.

Our knowledge of and commitment for the JAK inhibitor space extends well beyond these two compounds. We look forward to advancing our earlier stage JAK1 inhibitors, such as our compound INCB39110 for which we're conducting proof of concept studies in myelofibrosis, rheumatoid arthritis, and psoriasis. We expect to further expand the therapeutic potential of the JAK inhibitor class as a whole and ensure that Incyte retains a leading position in this space.

In addition to our JAK programs we have other compounds and developments such as our earlier stage oncology programs for c-MET or c-MET inhibitor partnered with Novartis and the Indoleamine Dioxygenase inhibitor in development for melanoma and ovarian cancer.

We continue to maintain a robust focus discovery program that examines three to four targets at a time, primarily focused on oncology with some potential overlap in inflammation.

Given the depth of our pipeline and the productivity of our R&D team, we believe it's important to continue our investments in both the existing and future programs, which should lead to important new medicines.

I'm now going to turn things over to Dave, who will walk us through some of the financials, including more details of 2013 expenses.

Dave Hastings

Thanks Paul. Good morning, everybody.

I will start today by discussing Q4 results and then I will review our 2013 guidance.

Let's begin with cash. We ended the year with $228 million in cash and investments. This amount excludes the $50 million milestone paid by Lilly in January related to the initiation of Phase III studies for baricitinib.

Now moving to Jakafi, we recorded $43.3 million of fourth quarter and $136 million of full year 2012 net product revenues. Efficiently we recorded $3.7 million in Jakavi product royalties from Novartis for sales outside the United States.

Our gross-to-net adjustment for product revenue recognized was approximately $3.2 million or about 7% for the fourth quarter and $10.7 million or approximately 7.5% for the full year 2012. As a reminder our gross-to-net adjustment includes the following fees to our specialty pharmacies, rebates the governmental payers, our share of the doughnut hole for Medicare Part B patients, copay assistance to eligible privately-insured patients, and any product returns.

Our cost of goods sold for both the fourth quarter and full year 2012 was immaterial as our starting finished goods inventory was previously expensed as R&D prior to FDA approval. In terms of operating expenses, SG&A was within expectations, while R&D expense came in below our guidance.

Now, I'm moving to 2013 financial guidance. As Paul mentioned our Jakafi net revenue is expected to be in the range of $210 million to $225 million. In terms of our gross-to-net adjustment we expect that to range from 8% to 9% in 2013. Note that because of our portion of the Medicare Donut Hole the first quarter's gross-to-net may be in the high end of that range.

In terms of contract revenues we expect $66 million in revenue from the amortization of the upfront payments received under the Novartis and Lilly agreements. For milestones, we expect to receive $60 million under the Novartis collaboration for EU pricing approval for Jakafi in specific countries.

In terms of royalty revenues, while we're not providing 2013 guidance, now that we're receiving royalties from Novartis, we're able to describe the overall royalty arrangement we have with them. Our tiered royalty rate from Novartis ranges from the high-teens to the mid 20s on net sale of the Jakafi outside the U.S. Additionally when Novartis receives pricing and reimbursement approval in specific European countries, we will begin to record tiered, low single-digit royalties payable to Novartis on net Jakafi sales in the U.S. These royalties will be recorded in cost of goods sold. Therefore, we expect the total cost of goods sold as a percentage of net Jakafi sales in 2013 will be about 2%.

At steady state, when we're using the inventory that has not been previously expensed, we expect cost of goods sold to be in the range of 4% to 6%, which includes our royalty payments to Novartis.

In terms of 2013 R&D expense we expect that to range from $260 million to 270 million. This includes non-cash stock comp expense of approximately $25 million to $28 million. Our increase in R&D expense from 2012 is primarily due to higher co-development costs for Phase III studies for Baricitinib and RA, the expansion of our proprietary JAK1 inhibitor program, and increased investment in medical affairs for our continuing medical education supported Jakafi.

In terms of SG&A expense, we expect that to range from $100 million to $110 million. This includes non-cash stock comp expense of $14 million to $17 million. The increase is primarily due to increased sales and marketing investment in support of Jakafi. We expect our interest expense this year to be $47 million, including a non-cash charge of $28 million related primarily to the amortization of the discount on the 4.75% Convertible Senior Notes.

So with our strong cash position, and now multiple sources of cash flow, we believe that we're in a strong position to fund continued growth.

And so with that, Paul I'll turn the call back to you.

Paul Friedman

Okay. So before we open the call to questions, I just want to remind you of our goal for Incyte over the next five years that is to build a sustainable, diversified, high growth pharmaceutical company.

As we enter 2013, we're confident that we've the increasing financial and human resources we need to execute on this vision and we believe will drive substantial value for patients, doctors, our employees, and our shareholders.

So now we will move to Q&A and open the call for questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question is from the line of Matt Roden of UBS. Please proceed with your question.

Matt Roden - UBS

Thanks for taking the question. In your prepared remarks, you spoke about early signs of improved persistence and your guidance has realistically achievable goals in patient retention 2013. Can you be a little more specific as to what you're seeing in the clinic now and whether or not this relates to improved patient mix vis-à-vis the initial bolus of high needed patients and whether to what extent is related to the dosing information you guys had at ASH and how these factor into Q1 2013?

Jim Daly

Hi, Matt, this is Jim. Matt, I think the best single indicator that physicians are becoming more facile with the dose is looking at the dose mix. And we've seen a steady increase in the utilization of the 10 milligram and 5 milligram tablets. As a matter of fact, for the first time recently on a year to-date basis we've seen 10 milligrams becoming the most frequently dispensed dosage form.

So that's probably our single most tangible piece of evidence that doctors are responding to the titration information from ASH and using it to incorporate more individualized dosing into practice.

Matt Roden - UBS

And I presume that is sort of correlating with lower discontinuation rates over time?

Jim Daly

It's there, its preliminary, Matt, but again the favorability we saw in the fourth quarter versus our guidance that was not attributable to new patient starts that was attributable to patients staying on treatment longer.

Matt Roden - UBS

And then on the pipeline, we're seeing an expansion of investigator sponsored trials Jakafi in various liquid and solid tumors in addition to your own pancreatic trial, Rich or Paul can you speak to with respect to the pancreatic trial you've an overall survival endpoint, so obviously you think that this has a direct antitumor effect. Can you speak to the mechanism around why we should see an antitumor effect with JAK in addition and if you actually in the end don't get an antitumor effect if you did see an effect on sort of supportive care type of endpoints would that be sufficient for taking it forward in solid or liquid tumors?

Rich Levy

Hi, Matt, this is Rich. So the rationale for the antitumor effect in pancreatic cancer relates to the basic mechanism whereby, which STAT3 phosphorylation for example is reduced because if you inhibit signaling through JAK it's going to reduce STAT3 phosphorylation. And there are good animal models in pancreatic cancer showing that that is a key mechanism. Now most pancreatic cancers have other imitations, but somehow in ways that have not yet been defined, these work in synergy such that by inhibiting STAT3 phosphorylation you get an antitumor effect and that's has been demonstrated both in cell culture as well as in xenograft models.

Now the other aspect that we're talking about is whether this will prolong survival as a result of improvement in the metabolic status so called treatment of cancer for cachexia. We think both mechanisms may be applied here, if we can increase survival in a solid tumor like pancreatic cancer, I don't think it's critical why that happens as long as you're increasing survival and pancreatic cancer is kind of our model solid tumor disease here, but this seemed like it can be applied to a number of other solid tumors including potentially breast cancer, non-small cell lung cancer, and potentially others as well.

Matt Roden - UBS

So have you given though to in the cases didn't show a frank overall survival benefit, but you did see improvement in various symptoms, symptomatology, would that be sufficient to continue development?

Rich Levy

Well, possibly, we haven't really considered that per se. I mean there is a possibility that you've survival trend in the studies, which is a privatized studies, just to small to actually prove it in which case that would be something. But remember that we really set that President here on oncology with development of drugs related to symptomatic improvement as we saw in myelofibrosis in being the first approval based on the patient reported outcome. And the oncology division of FDA is very amenable to these types of approaches in a situation where you're making a profound impact. There can't be a trivial change in the symptomatology but when you've a profound impact as we did in myelofibrosis that is an option. But whether that would be where we would then spend our money and resources remains to be seen when we actually see the data sometime in the second half of this year.

Operator

Our next question is from the line of Boris Peaker of Oppenheimer. Please proceed with your question.

Boris Peaker - Oppenheimer

And also I want to add my congratulation for the excellent result. Now, just a general question for Jim. Could you update us on the progress of advancing Jakafi into less advanced patient particularly in the community setting? What are the kind of feedbacks that you're getting?

Jim Daly

Yes, Boris, it is mixed. And I want to be straight with you. I think using intermediate one is probably still the exception rather than the rule. But we're seeing some use in less obvious, less severe patients, and we think that bodes very well for the long-term. Right now, though we're seeing still substantial opportunity in the high risk patients. So, our primary focus right now is to engineer successful trial in the high-risk patients and earn the right to go back in and ask for less severe patients and we're confident that we're going to be able to do that overtime.

Boris Peaker - Oppenheimer

I see. And so then, in your 2013 guidance, I guess what fraction of the growth do you anticipate to come from expanding to new patients and less advanced patients versus may be just change in duration of treatment of existing patients?

Jim Daly

Sure. Again, I think the guidance is our best quantitative description of what's going to happen next year. But qualitatively, the two key drivers in the forecast are new patient starts and length of treatment, and we do assume a modest, realistic, achievable increase in persistence. We're also assuming that we'll see a very slight slowdown in a number of new patient starts month over month and that reflects the fact that it becomes more difficult to get the less severe patients on treatment. But our forecast does assume that we will be able to penetrate into the moderately severe patient population and maintain a robust supply of new patients.

Boris Peaker - Oppenheimer

And the new patient starts that you just mentioned potential is slowing down a bit. You think that the ASH data would really help you to kind of push the accelerator further on these patients, and if so, how long based on your kind of estimates do you think would take to disseminate this ASH data to the community setting?

Jim Daly

Sure. If we're able to maintain the same rate of new patient starts that would be an upside to our forecast. And I do think that it is a plausible scenario that the overall survival data from ASH could enable us to do that. Now the local ASH meeting, the best of ASH and the ASH update that takes place in the academic medical centers, those have just started, just wrapped up, and generally we're very pleased with the awareness level of the ASH new data. Some evidence of that is seen in the number of inquiries that our medical department is receiving, regarding subjects like overall survival and subjects like dose titration. So clearly there is an awareness of the data and there is an interest on the part of physicians to incorporate it into their practice. So we're encouraged by what we're seeing from ASH today.

Paul Friedman

Can I -- I just also add that our intent is to publish, in a peer review journal the data from ASH. And once that has happened, those papers can be handed out to physicians under current guidelines.

Operator

Our next question is coming from the line of Cory Kasimov, JP Morgan. Please proceed with your question.

Matt Lowe - JP Morgan

Hi it's actually Matt Lowe in for Cory today. Just a couple of questions. First one is on, are there any specific strategy you're using to get the dosing message out there, and then on the survival message, have you noticed a change or a more receptive physician audience since ASH? Thanks.

Paul Friedman

Part one; we were certainly using scientific exchange, the primary channel for communicating dose information. Certainly I represented that reinforcing the information is in the current product label, and to the extent the information is not in the label that is being communicated via the medical exchange, CME et cetera. Regarding the response, the overall survival data, I'd say absolutely. I think the consistency of the data in COMFORT-I and COMFORT-II, is building confidence on the part of physicians that the product is working to treat the underlying disease and providing a profound benefit to the patients, above and beyond symptoms.

Operator

Thank you. Our next question is coming from the line of Rachel McMinn of Bank of America, Merrill Lynch. Please proceed with your question.

Rachel McMinn - Bank of America Merrill Lynch

I've got a question. One, I'm hoping you can help us understand what the hurdle is for the futility analysis for Jakafi in the pancreatic cancer study. And then, I also just wanted to get a sense in terms of sequential trends. I know you're not giving quarterly guidance but Q1 tends to be seasonally weak across the board for oncology drugs from insurance based issues and I'm just wondering if you expect a similar trend for Jakafi next quarter?

Paul Friedman

Well Rich Levy do.

Rich Levy

On the futility we're already past that and the study was not stopped for futility. That could potentially have happened if the conditional power was less than 30% and that was not the case and that's basically all we know. At this point in time the study remains blinded.

Rachel McMinn - Bank of America Merrill Lynch

I'm sorry, just a follow-up to that. Sorry, I didn't mean to cut you off but just a follow-up Rich, is the expectation around six months survival for this population?

Rich Levy

Well, so the historical data in this patient population is about 3 to 4 months survival. These are second line patients.

Rachel McMinn - Bank of America Merrill Lynch

Second line, okay.

Rich Levy

It's not clear whether or not the historical data will match with the control -- what the survival is in the control ARM of this study as each individual study can enroll slightly different patient population. So the important thing would be comparing treatment with Jakafi to those who were treated with placebo with everybody getting capecitabine. So, it's really about the hazard ratio, how much longer they live relatively than absolute but we'll just have to wait and see what those numbers look like.

Paul Friedman

And Rachel regarding the seasonality you're exactly right particularly with products that are on exposed to patients restarting their deductibles has tampered our expectations for January and I'm glad to report that we're very encouraged by what we saw in January and we're confident that we will be here when we give you the first quarter results being able to saying that our results are consistent. So we're very pleased with the way we came through January.

Operator

Our next question is coming from the line of Eric Schmidt of Cowen & Company. Please proceed with your question.

Eric Schmidt - Cowen & Company

Jim, you keeping pointing toward improved persistence for the strong Q4 results. Can you provide with us any metrics or you're now able to talk about may be specifically the discontinuation rate or the average duration of therapy?

Jim Daly

Eric, we are reluctant to do that because unfortunately on a short period of time there's still got a not of lot of noise in the system, and unfortunately that noise is only going to increase as we go into January because your patients will be changing their specialty pharmacies because their insurance plans change. As a result, we think there is a single best indicator right now to point to is looking at the dose mix. I think when we have more time, when we have greater period of time and more stable data and the ability to separate signal from noise a little better, I think then will be more willing to talk about persistence rate in more specific terms.

Eric Schmidt - Cowen & Company

There is a couple of questions for Dave, if I could. First on the ex-U.S. Jakafi sales, are you recording your royalties concurrently with the Novartis? In other words, I think Novartis reported $21 million fourth quarter Jakafi sales so the $3.7 million in royalties is essentially 18% of that figure?

Dave Hastings

Yeah, that’s correct, Eric. We will do that concurrently now and in the future.

Eric Schmidt - Cowen & Company

And then for the 2013 COGS guidance you alluded to a 2% figure. Is that inclusive of any actual cost of goods or are you still going through previously expensed product in 2013?

Dave Hastings

Yeah, our API is still the previously expensed product but we do have recurring cost of goods sold, things like our film finish of the product warehousing, shipping costs, so there is a component of our COGS that is manufacturing based.

Eric Schmidt - Cowen & Company

So most of the 2% sounds like the reverse royalty?

Dave Hastings

We are not going to get that granular, Eric, in terms of what that break down is.

Operator

Thank you. Our next question is from the line of Ian Somaiya with Piper Jaffray. Please proceed with your question.

Do Kim - Piper Jaffray

Hi, this is actually Do Kim in for Ian. I was hoping you could maybe talk about what you know about Novartis’ initial success with Jakafi in Europe, and what Novartis is doing to keep the levels of drop out flow and how that compares to your experience in the U.S.?

And a couple of questions on the pipeline, how should we think about the three Phase III trials -- Phase II trial for the JAK1 inhibitor and about the future direction of that program in terms of oncology versus inflammatory? And also whether if the pancreatic Phase II trial for Jakafi, could possibly be registration enabling? Thank you.

Paul Friedman

Sure. I will take the Novartis Jakafi. Generally as a principle we rely on our partner describe their own performance but Rich and I happened to be up in New Jersey for the day yesterday and we are also aware what they said publicly. So, as indicated previously, they sold $21 million in the fourth quarter. They are approved in more than 30 countries. They have launched in Canada, Germany, Austria, UK, Denmark and Norway. They had over 2900 patients in the early access program. So, they are very encouraged by their early performance at launch.

In terms of dose titration and length of therapy, in Europe, patients particularly with rare diseases tend to be referred more to tertiary care centers than in the U.S. So, they are very confident that the ability of specialists who can treat a greater volume of MF patients to again be more fast forward with the dose and more diligent on the titration will allow them to minimize premature discontinuation.

Jim Daly

Okay. So, with respect to the JAK1 program that we have, we have a stable of interesting compounds that are selective for JAK1; 39110 is the first of those. We are looking in myelofibrosis and in to inflammatory conditions at the efficacy and tolerability of 39110. And I think we are planning to begin to see that data in the second half of this year. And that data will guide us to where to go from there and which compounds beyond 39110 we might or we might not want to add to the clinical mix of these JAK1 selective compounds that we have.

I’m going to ask Rich to comment on the third question that you asked, and that had to do with the registerability of the blinded Phase II overall survival pancreatic cancer study.

Rich Levy

Yeah. So the study is a randomized study with about 60 to 65 per ARM. So the results would have to be -- and but it is based on survival. So I think you would have to have a very clear survival benefit for regulatory authorities to consider giving an approval or even accepting for filing based on this one study. But if the results were very, very clear, I think it would be difficult for them not to consider making something like this available through labeling considering that there is very limited treatment options here. It’s a highly fatal -- rapidly fatal disease. And if you can improve survival with quality of life there it has to be a possibility, but until we see the data it’s really hard to say.

Operator

Our next question is from the line of Salveen Richter with Canaccord Genuity. Please proceed with your question.

Salveen Richter - Canaccord Genuity

Last quarter you have mentioned that 30% of target doctors had written a script. Just wondering if you have an update there? And then, also how you are going about restarting discontinued patients?

Paul Friedman

Yes, the figure we quoted was for the end of 2012. so, we will give you an update on how we are doing in the first quarter of 2013 with our first quarterly results but that is the accurate; we penetrated about one third of our target audience of 6500 physicians.

And in terms of discontinuation, we are basically encouraging physicians that if they have identified a patient who they felt would derive benefit from Jakafi and that patient was discontinued particularly because of Cytopenias, and our research indicate that two thirds of discontinuations are due to Cytopenias, we are seeing the Thrombocytopenia as a cause for discontinuation decline, and so we are very focused on anemia. We are encouraging those physicians to restart their patients on a lower dose and we are seeing some success with that.

Salveen Richter - Canaccord Genuity

Great, and then, Dave, just a question for you just wanted to get a sense of when you may record the $60 million in milestones and when you expect reimbursement in the specific EU countries?

Dave Hastings

Yeah, I think probably by mid year or so I mean.

Operator

Our next question is from the line of Brian Abrahams of Wells Fargo. Please proceed with your question.

Brian Abrahams - Wells Fargo

Hi, thanks for taking my question and congrats on another good quarter. I have a question for Jim. I was wondering if you could talk about the role of patient advocacy groups particularly since the updated Jakafi survival data have been presented; just wondering if you anticipate that will have a growing any sort of growing impact on use patterns? And then, as you think about the long term potential competitive dynamics how relevant is it having versus not having survival benefits on the label? Does it really matter given the physician awareness of evolving data? Thanks.

Paul Friedman

Okay. Well we are spending a lot of time working with patient advocacy groups and we think it’s a great investment primarily for patients. And what we are seeing is that this has been a condition of watch and wait for physicians/patients for a long time, and that an educated patient really in many cases is the catalyst for a as a treatment trigger for Jakafi. So, certainly that is a very -- that is a very productive use of our time to work closely with the groups and overall survival clearly is a catalyst. And what we are seeing is that when patients ask for Jakafi or about Jakafi in the vast majority of cases physicians will prescribe it. So that is an important weaver and we remain very focused on it.

In terms of overall survival relative to future competitors, absolutely, I think if you look at the history of oncology products where you have an incumbent product with overall survival data I think history indicates it is very, very difficult for follow up competitors to displace that product. And we are going to obviously be doing everything we can to keep that pattern intact when it comes to Jakafi.

Operator

Thank you. Our next question is from the line of Thomas Wei of Jefferies & Co. Please go ahead with your question.

Thomas Wei - Jefferies & Co

I wanted to ask about the guidance. It seems very low to me relative to the trend that you are seeing in the fourth quarter and if I incorporated all of this math quickly on the fly as you were talking about it on the call, I don’t have a slight slowdown in new patient starts, I would actually need to drop my new patient start rate by somewhere between 20% and 35% immediately relative to the fourth quarter level. So I wanted to try to understand to that is that the right way of thinking about it, and is that because you are actually starting to already see that type of slowdown so far during the first quarter of the year?

Paul Friedman

Yeah, couple of things, Thomas. Number one, we are not seeing a slowdown in new patient starts. We are seeing a consistent rate of new patient starts in the fourth quarter, and as I said previously we are encouraged by what we have seen in January. So I think that's point one.

Point two, we probably don't want to get into doing mass over the phone here for what I can assure you is that in order to hit the low end of our guidance, we are looking at unique growth dispensed bottles growing consistently quarter over quarter at a high single digit rate. At the high end of guidance, we are looking at low double digit growth in units quarter over quarter, and then you have to layer on the impact of price, and as you remember we took a 9% price increase on November 16. So that's really how you range, how we are ranging our unit growth.

If you take a look at a fairly linear phasing, let's take the 433 in the fourth quarter you'd have to adjust for a price benefit there. Phase that growth over 2013 you are looking at between a 40% and a 50% fourth quarter '13 over fourth quarter '12 growth rate in terms of net revenues. So we think that is ambitious. We also think it is realistic and it's achievable.

Thomas Wei - Jefferies & Co

And did I hear you correctly in answer to somebody else's question, did you say that the fourth quarter new patient starts were similar to third quarter new patient starts and that all of the increase in sales on a quarter basis is related to improvement in persistence and discontinuation rate?

Paul Friedman

What I said is overall, the rate of new patient adds has been consistent. And if you take a look at the fourth quarter in particular, new patient's starts were consistent with our forecast that we used to generate the guidance of 130 to 135, and the favorability we had coming in at 136 was totally attributable to an increase in persistence.

Thomas Wei - Jefferies & Co

And can you say that there's something unusual that the timing of new patients starts in the fourth quarter was very front-end loaded and not very much seen towards the end of the quarter? I guess it doesn’t, you're saying January actually looks pretty good. So but did it follow that sort of pattern during the quarter or was it relatively consistent over the quarter?

Paul Freidman

I would say relatively consistent, Thomas.

Thomas Wei - Jefferies & Co

Okay, I got some struggling a little bit, but because if you have 35 in third quarter and then in the end of July the rate is 42, in the fourth quarter your seeing kind of a consistent add over the quarter, then that 42 is not really becoming something much higher, and then you later on the price increase and we, I can follow-up with you offline on some of the math, but maybe just my last question here.

Paul Freidman

I think meeting the math that we've communicated really is the math that we're going to communicate, Thomas. But again, we're giving a very tight guidance range of 210 to 225, and we're going to rely on you to complete your models, looking at how you get through to an increase in persistence and a modulation in new patient starts.

Thomas Wei - Jefferies & Co

Okay. That's helpful.

Paul Freidman

I think we have a whole lot more math to add than that.

Operator

Our nest question is from the line of Ying Huang of Barclays. Please proceed with your question.

Ying Huang - Barclays

First of all, this is a question for Jim. So I noticed that the SG&A and going up to, yeah, $100 million to $110 million this year additional program. Can you give us a little bit clarity on what additional programs you're planning for promotion for Jakafi this year?

And then secondly I noticed that they'll be a modified label in second quarter. Can you give us a preview, what might be appearing on the FDA approved label in the second quarter?

And then lastly, obviously you have this on novel compound in Phase II. Can you clarify what your relationship would Lilly is because obviously Lilly also has their JAK1 inhibitor Phase II trial as well? Is there any conflict of interest or is there anything value wrote in the clause of the contract? Thank you.

Jim Daly

On the promotional standards, there are two areas of focus, both professional education. One is disease education, educating physicians on the nature of myelofibrosis, the disease course over time. And number two is on the need for a dose titration. So, it is our increase spend is largely focused on professional medical education.

Dave Hastings

And then, Jim, I will also add that initially our foundation payments to assist Medicare patients are in there as well and as our sales increase that number goes higher, yeah.

Rich Levy

So, with respect to Lilly, I think it is our understanding that the compound that they have in development is directed to myelofibrosis. They had a JAK1 that they thought was selective for V617F JAK, right?

Jim Daly

Sir, I am not sure that I understood the question the same way that you did. But on that topic I mean, that program had a lot of renal toxicity.

Rich Levy

Right. And I think they are not developing in any --

Jim Daly

I do not know what they are doing. We have a strict firewall between what they are doing in myelofibrosis.

Rich Levy

Right. But that's our guess. But with respect to the details of the contract we are not able to hallucinate those for you. We just say that when we say that these compounds are Incyte priority compounds that is what we mean.

Ying Huang - Barclays

And then, on the label?

Jim Daly

Yes. So, what this supplemental NDA is about is dosing for patient to start platelet counts less than a 100,000. And as we have talked about in the past, we think the appropriate starting dose for those patients is 5 milligrams twice daily, that most of those patients can get up to 10 milligrams twice daily safely and when they do so they see efficacy similar to what we have seen in the COMFORT trial. So, the proposed labeling is around that but until we actually get feedback from FDA I am not going to get specific about exactly what was proposed till we see what we end up with.

Ying Huang - Barclays

And Rich, the data presented at ASH, would that go in some label or is that something you proposed?

Rich Levy

So the data that was presented at ASH is not in this submission that was made last August specifically on patients who start with platelet counts less than 100,000 the data is presented at ASH this year. The data is presented on COMFORT study this year was largely on patient start with greater than 100,000. There was one presentation given on the low platelet study and that is correct. But in terms of the -- this data on the COMFORT studies that was presented at ASH showing both survival benefit first time in COMFORT-II whereas we have had one for a while in COMFORT-I and the data on dose titration in patients that start with greater than 100,000 platelet count. That is likely to be the basis of a separate SNDA that we would file this year, but wouldn’t have change of labeling on that within 2013.

Operator

Thank you. Our next question is from the line of David Friedman of Morgan Stanley Please proceed with your question.

David Friedman - Morgan Stanley

Can you just comment on whether there is any inventory changes in advance of the November price increase, and then also if you can just discuss any details about how you’re thinking about price this year and next year?

Paul Friedman

David, this was a very modest build and probably we had some wholesalers anticipate the anniversary of our launch, and that was corrected certainly within the next few weeks. So as I said, we ended with -- when we’re talking about 4% change off of essentially three weeks of inventory that’s really a de minimis impact on the business. And in terms of future price increases, no, we will not be commenting on those.

Operator

Our next question is from the line of Joshua Schimmer of Lazard Capital Markets. Please proceed with your question.

Joshua Schimmer - Lazard Capital Markets

Paul, I guess you separated the Heme/Onc indications from the inflam indications for Jakafi versus baricitinib. Do you plan a similar two-drug strategy with the JAK1 inhibitors? Also, at what stage would you plan on partnering inflam indications? And then last, do you believe that PV on a global basis could be priced on part of the MF indication and if not is there an opportunity to differential price PV versus MF in some geographies based just on separate molecules? Thanks.

Paul Friedman

Josh, on the strategy for JAK1, obviously we talk about all the possibilities that you have just raised, and we need to see the results from these early Phase II trials as we try to optimize our strategy going forward. I mean, each of the compounds that are coming along a little bit behind 39110; they all have slightly different characteristics. And in an ideal world for clean labels, yeah, you would probably like to have compound inflam that was for inflame and a compound or maybe more than one for oncology, its way too early to speculate on if and when we would partner the inflam indications, but we will keep you updated as we go along.

On the pricing for PV I am going to ask Jim to comment on that.

Jim Daly

Yes, I think it's premature to be talking about PV pricing at this point; we are just getting into our pre-launch planning. So, preliminarily we are excited by the opportunity. We think we have a very strong value proposition. The interesting thing here is the side effect in MF becomes the treatment benefit in PV in terms of reducing counts. We're excited by the epidemiology. There are a lot of patients who will benefit from Jakafi in PV. And also I think the underappreciated dividend here is the length of the treatment. These patients will be on treatment for an extended period of time. So, we see a very exciting opportunity for the brand in PV.

Operator

Thank you. Our next question is from the line of (inaudible). Please proceed with your question.

Unidentified Analyst

It turns out that my mom plays mahjong with the Maryland Director of the Paul Freedman fan club because he grew up in Maryland, and she asked me a couple of questions last night and I gave her some answers and I want to run it by you guys. In terms of patient metrics, she was saying well they are adding about, what's gross in that add? And I said, well, I think gross are adding maybe 200 to 220 patients a month and net maybe 90 to 100 patients a month. And then she asked me, well, are they, you know, I hear you told me that the lowering the dose, and she said do they have any ability to split the pill or the capsule? And the other question that she sort of added and then I said I thought the price is the same regardless of the dose. So could you confirm all that or tell me what I should tell my mom.

Paul Friedman

Well, let me I don’t think we want to comment on new patients adds in general but I tell you what I will say. I'll say your mom is not a bad is not a bad forecaster in terms of the new patient adds. On the net, I don’t want to make any comment at all on that.

In terms of splitting the tablet, we really don’t see that as a feasible option. We don’t think that’s an interest to patients to get into tablet splitting.

Unidentified Analyst

And then is the price the same across all those dosages?

Paul Friedman

It’s flat pricing.

Jim Daly

Absolutely.

Unidentified Analyst

Okay. And then the final thing she thought I was discussing is tell me about JAK1 versus mix JAK1 JAK2. What are they going to see from selective JAK1s if they don’t get from JAK1 JAK2? And the only thing I could tell her is I thought that JAK1 inhibitors sort of knocked down the cytokines in the inflammation but I wasn’t very elegant in that standpoint, so I thought maybe Paul or Dr. Levy could help there.

Rich Levy

Yeah. So, it's Rich. So, I mean, things are theoretical until we see clinical data, but the idea is that erythropoietin and thrombopoietin signal through JAK2 exclusively, and that if you have a JAK inhibitor it doesn’t signal through JAK2 you might see less anemia and thrombocytopenia while maintaining the benefits in terms of the inflammatory that exist. Now, that difference could have impact in a disease like myelofibrosis where potentially you could see less anemia and thrombocytopenia. But in diseases like rheumatoid arthritis and psoriasis which are the other two that we are studying now, we believe now that there are JAK1 JAK2 inhibitors such as baricitinib that have a great efficacy without any significant anemia or thrombocytopenia. So, it is an interesting feel to continue to look at.

The other aspect is in oncology where you have drugs that are being used that already are reducing blood counts that a JAK1 inhibitor may be more easily combinable with some of those drugs because it wouldn’t contribute to the cytopenia.

Operator

Thank you. Our final question this morning is from the line of Bret Holley of Guggenheim Partners. Please proceed with your question.

Bret Holley - Guggenheim Partners

I was wondering what your current estimate of the percent of addressable high to intermediate risk MF patients during the low platelet count group and what is the current behavior with these patients? Has the data gotten out there from ASH and that you are seeing more of an uptake in that segment of the MF group?

Paul Friedman

I can't give you a quantitative estimate but it has a huge range on it, Bret, in terms of percent of high risk intermediate to that have low platelets, but what I can tell you is that the awareness of the 5BID data is very high, and we are seeing thrombocytopenia as the cause of discontinuation on the decline. So we think that's an issue that that we have really go our hands around and we think we are going to manage that very effectively.

Bret Holley - Guggenheim Partners

And just a quick follow up, could you give an update timeline on the ASH4 results for PV from response and relief now that we are into 2013?

Rich Levy

Yeah, we've -- results were come out in the first half of 14.

Operator

Thank you. There are no further questions at this time, I will turn the floor back to management for closing comments.

Paul Friedman

Thank you all for your attention this morning. We look forward to making good progress and talking to you again in about three months. Thank you, and good morning.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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