Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Pamela Murphy – Vice President of Investor Relations and Communications

Paul Friedman – President and Chief Executive Officer

Dave Hastings – Executive Vice President and Chief Financial Officer

Rich Levy – Executive Vice President, Chief Drug Development and Medical Officer

Pat Andrews – Executive Vice President and Chief Commercial Officer

Analysts

Salveen Richter – Collins Stewart

Bret Holley – Oppenheimer & Company

Eric Schmidt – Cowen and Company

Matt Lowe – JPMorgan

Matt Roden – UBS Financial

Thomas Wei – Jefferies & Company

Rachel McMinn – Bank of America/Merrill Lynch

Ying Huang – Gleacher & Company

Dave Friedman – Morgan Stanley

Incyte Corporation (INCY) Q4 2010 Earnings Call February 10, 2011 8:30 AM ET

Operator

Greetings, ladies and gentlemen and welcome to the Incyte Corporation’s Fourth Quarter 2010 Financial Results. At this time, all participants are in a listen-only mode. 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 of Investor Relations and Communications. Thank you. Ms. Murphy, you may begin.

Pamela Murphy

Good morning and thank you for joining us. On the call today are Paul Friedman, Incyte’s President and Chief Executive Officer; Dave Hastings, Executive Vice President and Chief Financial Officer; Rich Levy, Executive Vice President, Chief Drug Development and Medical Officer; and Pat Andrews, our Executive Vice President and Chief Commercial Officer.

To begin, Paul will provide a brief review of our accomplishments in 2010 and describe key goals for this year. Dave will follow with a discussion of our fourth quarter and year-end financial results and provide 2011 financial guidance. We will then open up the call for Q&A.

Before beginning, we’d like to remind you that some of the statements made during the call today including statements regarding our plans and expectations for our drug development program, including timing of our clinical trials, regulatory submissions and the potential safety and efficacy of our compound as well as our expected financial results and guidance are forward-looking statements. 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 30, 2010 and from time-to-time in our SEC document. Paul?

Paul Friedman

Thank you, Pam. Good morning, everyone. The fourth quarter and the full year were exceptionally productive for us. We accomplished many major corporate goals, not the least of which was the achievement of positive results for COMFORT-I, the pivotal trial of Incyte 18424 in myelofibrosis or MF and the start of preparations for the submission of our first NDA.

This NDA could result in the approval of the first JAK inhibitor to treat MF, which can be a profoundly disabling, life-shortening disease that places tremendous burden on the patients. And if approved, we certainly expect 424 to have a significant impact on the way this disease would be treated.

Last week, we learned that the World Health Organization has accepted ruxolitinib as the recommended International Nonproprietary Name for 424, and as you saw in this morning’s press release, we are now using this global generic name and practicing the pronunciation.

During the fourth quarter of our pipeline -- our pipeline of JAK compounds advanced with the initiation of the joint global Phase III registration trial, RESPONSE, for ruxolitinib in advanced polycythemia vera or PV and our partner Lilly began the Phase IIb trial for Incyte 28050 in rheumatoid arthritis.

In addition to these being important clinical accomplishments, these events also triggered substantial milestone payments of $69 million from our strategic partners, Novartis and Lilly, bringing the total for the year in earned milestones to $102 million.

We also succeeded in our goal of initiating a new clinical program in oncology with the start of the dose escalation study of Incyte 283 -- 24360, a selective orally available inhibitor of indoleamine 2, 3-dioxygenase or IDO. And this compound, which is being developed as an immunotherapeutic, has shown impressive anticancer activity in preclinical studies and is another example of the productivity of our discovery team.

We ended 2010 with a very strong cash position. Dave will take you through that in a moment, and we have sufficient resources to achieve our objectives for this year. We’ll be focused on a number of important and promising programs, not only with ruxolitinib but other clinical compounds and some very interesting discovery programs that are important for future growth.

Coming back to the ruxolitinib NDA for the treatment of MF, I can tell you that we are making excellent progress in completing the NDA and are still targeting the second quarter for its submission. The pivotal trial COMFORT-I was conducted under a special protocol assessment agreement with the FDA, which also granted ruxolitinib both orphan drug status and a fast-track designation. So we are anticipating a six-month priority review.

If the FDA decides to have an advisory committee meeting, we will be ready and should we receive approval on this timeline, we intend to launch late this year. Novartis has also made great progress with ruxolitinib. They recently completed the COMFORT-II trial in Europe and assuming the data are positive, will submit the MAA midyear.

We’ll also include these supportive data in our NDA. And with respect to publication and presentation of our COMFORT-I Phase III data, this is obviously an important objective for the ruxolitinib development program and I am sure to you as well. And in that regard, our COMFORT-I abstract has been submitted to ASCO.

Novartis has been a great partner in this program and shares with us the vision for the development of ruxolitinib not only in MF and other myeloproliferative neoplasms, but also in other malignancies. As I already mentioned in the last quarter, we began the global Phase III RESPONSE trial with ruxolitinib in patients with advanced PV. We are conducting the trial in the United States and Novartis is conducting it ex-US. The trial is going to include approximately 300 patients and we expect to complete enrollment late this year.

We also plan to continue the extension phase of the ruxolitinib Phase II study, 251. We are still getting very important data from that study as well as the extension phases of the COMFORT-I and II studies and for the later of marketing approval or the last randomized patients remaining in the study, completing week 144 or that would be 36 months.

We also intend to initiate with Novartis in the first quarter, a joint global Phase II trial in MF patients with low platelets, and although we have treated patients whose platelets were below 100,000 with positive results, in the Phase II study 251, this next study will be useful in exploring other dosing regimens and further reinforce the value of treating these patients with MF who also can have enlarged spleens and debilitating constitutional symptoms.

There are several additional Phase I, II studies that are planned or ongoing as we expand the development of ruxolitinib, some of which have been initiated at the request of the medical community. M.D. Anderson Cancer Center is conducting two such studies. A recently initiated Phase I-II trial in acute leukemias and the ongoing Phase II study in refractory relapsed hematologic malignancies.

The investigator-sponsored pediatric trial which began last year is evaluating ruxolitinib in patients with both hematologic malignancies and solid tumors and is being conducted by the NCI Children’s Oncology Group. Enrollment continues in this trial. We are also considering additional requests for studies from -- internally as well as the medical community in other tumor types as well.

In that regard, given the very compelling evidence that activation of the JAK-STAT pathway is important in a number of subtypes of lymphoma, we expect to begin a Phase II trial in lymphoma patients in the second half of the year. In addition, our clinical team is evaluating ruxolitinib in solid tumors and has selected pancreatic cancer as the first such indication for a Phase II trial slated for later this year.

Pancreatic cancer is of particular interest because of the high therapeutic need as well as the high incidence of severe cachexia in this group. Our preclinical models in this cancer have shown promising results. Additionally, we think the positive results we have seen on metabolic status in myelofibrosis patients have the potential to be carried over to pancreatic cancer as well since cytokine-mediated hypercatabolism is thought to play a major role in solid tumor cachexia.

Now, for our second oral JAK1-JAK2 inhibitor, Incyte 28050 partnered with Lilly the enrollment for the Phase IIb trial in RA is expected to be complete by the second half of the year. And turning to our early stage oncology programs, the Phase II results of our sheddase inhibitor, Incyte 7839, suggests that it, in combination with Herceptin-based regimens, may offer a new therapeutic approach in breast cancer patients, in particularly those who are p95 positive.

We have been conducting an analysis of tissues from HER2 positive breast cancer patients for p95 assay validation and to better define the expected rate of progression this subset of patients. We expect to complete the analysis of about 400 samples from two different large randomized European studies soon in the next few months.

If these results confirm our data, they will assist us in the design of the Phase III program and lead the discussion with the FDA in the first half of the year. Our oral cMET inhibitor, Incyte 28060, now licensed to -- Novartis is in a dose-ranging Phase I-II trial in patients with solid tumors. Once we complete this study, we’ll transfer the program to Novartis.

Our indoleamine 2, 3-dioxygenase or IDO inhibitor, Incyte 24360, is also currently in a dose range study in patients with solid tumors. We launched this program investigating a novel mechanism for a new modulation that we believe may provide a unique method to treat malignancies either alone or in combination with chemotherapeutics, targeted therapeutics and/or other immune-based therapies.

This study will help us establish dose levels for Phase II clinical trials, and it could provide some early signals of efficacy by the end of the year. And our final goal for 2011 is to file a new IND for another oncology target, which I’ll describe, once we are ready to begin clinical trials in the second half of the year.

So in summary, we’re continuing to advance and expand our pipeline in oncology and information with a focus this year on the potential commercial launch of ruxolitinib in myelofibrosis and the expansion of our clinical development plans for ruxolitinib. This marks an important transition year for us.

We’ll be building and investing appropriately to ensure a rapid and successful launch of our first product as well as continuing our strategy -- drug discovery and development to take advantage of our core strengths. And with that, I will turn the call over to Dave.

Dave Hastings

Thanks, Paul and good morning, everyone. I will begin today by reviewing our financial results and then I will discuss our financial guidance for 2011. 2010 was a really solid year for us from a financial perspective. We continued to benefit from the two significant strategic accomplishments of 2009, which were the recapitalization of the balance sheet, including our senior convertible note and equity issuances and our strategic collaborations with Novartis and Lilly.

The recapitalization allowed us to redeem the remaining outstanding 2011 convertible senior subordinated notes in February, 2010. And the two strategic collaborations greatly strengthens our cash position while still retaining significant value from the partner programs.

As a result, we are now well-positioned financially to potentially launch our first product this year. We ended 2010 with $424 million in cash, not including the $38 million we hold in escrow for payment of interest in our 4.75% convertible senior notes.

Our cash used in 2010 was $154 million, not including a $252 million we received in upfront and milestone payment from our collaborative partners, the $11 million in proceeds received from the exercise of employee stock options. And the $159 million used for the redemption of the 3.5% convertible senior and subordinated notes.

Our operating expenses for both the quarter and the year were in line with our expectations and reflected our continuing investment in our discovery efforts, clinical development programs and commercial preparations for the potential launch of ruxolitinib in MF.

Now, moving to our financial guidance. We still view cash use as our most important financial metric. We expect our 2011 cash use to range from $185 million to $200 million, not including any potential milestones from strategic partners or proceeds from stock option exercises.

The increase in the use of cash in 2011 is consistent with our key capital allocation goals, which include leveraging our core strengths in drug discovery and development, preparing for the launch of our first product later this year and having sufficient capital to appropriately fund that launch.

Turning to our operating guidance, we expect $67 million in revenue in 2011, not including potential milestones from strategic partners. And while we don’t give detailed guidance on milestones, I will say that we don’t expect them to have a significant impact on revenue this year.

We expect our R&D expense to range from $175 million to $185 million. Included in R&D is $18 million to $20 million of non-cash charges related to the expensing of employee stock options. The increase in our R&D expense from 2010 is being driven by the growth of our clinical pipeline, investment in commercial supply and increased headcount related costs.

Our funding for ruxolitinib will be primarily focused on the MF extension phases, the ongoing Phase III study in PV and the additional studies in other malignancies that Paul described. We also plan on increasing our investment in sheddase and our other earlier stage oncology programs, as well as our portion of the Phase IIb study in RA being conducted by Lilly with 28050.

Now, moving to SG&A expenses which we expect to range from $50 million to $55 million. Included in SG&A is $10 million to $12 million in non-cash charges related to the expensing of employee stock options. The increase in SG&A from 2010 is related to the investment in commercial preparations for launch of ruxolitinib in MF, including the hiring of the sales force. As we have mentioned in the past, we expect to hire approximately 60 sales reps, plus five to six district managers.

So as you can see, 2011 is a really big year for us, I am gratified that our cash balance is such that we are well-positioned to fund both the potential launch of our first product and the continued expansion of our pipeline. So with that Paul, I will turn the call back to you.

Paul Friedman

Thanks, Dave. I am going to open the call for questions in just a moment. But as some of you may have seen from our 8-K filing, Brian Metcalf, our Executive Vice President and Chief Drug Discovery Officer, has elected your retire in May. Brian has been with Incyte since February of 2002, just a few months after I came and was one of the original architects of our drug discovery strategy and instrumental in helping us recruit what I consider to be some of the best chemists in the industry.

Brian’s organization is the engine behind Incyte’s current pipeline and while we will miss his day-to-day presence, fortunately he has agreed to serve as a very active consultant to the company. So we can continue to utilize his expertise in medicinal chemistry and drug discoveries.

We thank Brian for his service and we wish him well in his retirement. He leaves the drug discovery group in very capable hands as we promoted [Wen Shin Yao] to lead chemistry and [Reid Hubert] to lead biology, two extremely experienced and talented individuals. I have a long history with both of them as Wen Shin and Reid were part of my team at DuPont Pharmaceuticals and they elected to join me at Incyte. So we are quite confident that we are in good hands in both of those disciplines moving forward.

So, operator, we can now open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Thank you. Our first question is coming from Salveen Richter of Collins Stewart.

Salveen Richter – Collins Stewart

Good morning. Thanks for taking my question. Can you just comment on the future clinical development plans for rux -- I am going to pronounce it incorrectly, but -- 424 in ET.

Paul Friedman

Ruxolitinib. In ET, yes. So I’m going to ask Rich Levy to opine on that.

Rich Levy

So it’s interesting that you bring that up in that we have a discussion with Novartis today to try to come to an agreement on the path forward. So I’m going to punt until next time but it is something that is actively being discussed.

Salveen Richter – Collins Stewart

Great. And then is there any way you can give us a sense of the market opportunity for MF patients that also have low platelet counts in the U.S.?

Paul Friedman

Pat, do you want to try that?

Pat Andrews

Sure. So low platelets can be defined in a variety of different ways. We’ve used 100,000 as a marker because our Phase III study has patients who had starting platelets over 100,000 and the low platelet study we are referencing to is patients who have less than 100,000. That being said -- and that’s about 40% to 50% of the market. That being said for the practicing oncologist, the hematologist, they are very used to working with platelets of all different levels. And for them, the definition may actually be lower. And they aren’t seriously concerned about low platelets until it falls below say 25,000 which is a relatively, very small percentage of [net] of the market. So we are really working between those two sets of numbers.

Salveen Richter – Collins Stewart

Great. Thanks and then just one last question. In the pancreatic cancer Phase II trial, will you be genotyping for JAK mutational status to enter the study?

Paul Friedman

No. That’s not necessary to do.

Salveen Richter – Collins Stewart

Okay. Thank you.

Operator

Thank you. Our next question is coming from Bret Holley of Oppenheimer & Company.

Bret Holley – Oppenheimer & Company

Yes. Thanks for taking the question. I guess, I’m wondering, does your 2011 SG&A expense guidance reflect a nearly full buildout of the ruxolitinib commercial team or should we expect, I guess, you know more buildout in 2012 there?

Paul Friedman

Yeah. But it does reflect the full buildout, but it is done gradually over the year. So it is not a fully loaded cost line for the sales force.

Bret Holley – Oppenheimer & Company

Okay. And I was wondering what the timeline might be for data from the M.D. Anderson trials for ruxolitinib?

Paul Friedman

These are the hematologic malignancies.

Bret Holley – Oppenheimer & Company

Yeah. Yeah.

Rich Levy

I would expect that there will be public presentations at ASH most years. I don’t know when the study would actually be “finished”, but there will usually be updates I would expect probably each time. And that’s I think the first time you’d hear about it would probably be ASH this year.

Bret Holley – Oppenheimer & Company

Okay. Thanks very much.

Operator

Thank you. Our next question is coming from Eric Schmidt of Cowen and Company.

Eric Schmidt – Cowen and Company

Yeah. Could you talk about the number or percent of patients who are on the open label studies, COMFORT-I and Phase II and still compliant with drug?

Paul Friedman

COMFORT-I, I think, is probably of the 309 patients that were involved. It’s still somewhere over 250 to 260 but I don’t have an exact number. And the patients who were -- originally randomized to placebo have now crossed over. So they’re essentially on drugs.

With respect to the [7251], I don’t have that number at hand. 154 patients were originally randomized into the study. We know that at M.D. Anderson, a really high percentage of the patients are still on drugs at Mayo Clinic. That percentage has come down considerably more but I don’t have a total number. I would suspect, it’s probably around half of the original patients still on drug but I just don’t know offhand.

Eric Schmidt – Cowen and Company

And then a couple of financial questions for Dave. First, do I interpret all the guidance you’ve given with regard to U.S. approval, timing, and milestones for 2011 to mean that you don’t get any milestone from Novartis upon approval in the U.S.?

Dave Hastings

So, when you think about that contract and where a partner would place the most value, it would really be outside the U.S. And so, while I can’t give real detailed guidance, that will give you some direction as to milestone flows for that program.

Eric Schmidt – Cowen and Company

Okay. And in terms of the support you get from Novartis, are they going to pay for the expanded kind of early phase program around ruxolitinib for lymphoma and pancreatic cancer and some of the other things you are doing?

Paul Friedman

So the way things work, is that there are studies that we do. There are studies that they do and there are studies that we split 50-50. There are some studies that are investigator-initiated studies and those are pretty much done by regions. So if it’s an investigator initiated study, in the U.S., we would tape the whole thing. If an investigator study initiated in Europe or outside of the United States, they would pay the whole thing. With respect to the pancreatic and lymphoma studies, those are U.S.-based studies. We are actually paying for those but there are other things that we haven’t talked about so much that will also come to our benefit that they are completely paying for. And for example, the response study in PV is being shared 50-50.

Eric Schmidt – Cowen and Company

Okay. And last question, if I look at the 2011 guidance and the stock compensation expense, that’s ramping up pretty substantially year-on-year. It looks like you’re allocating a greater percentage of total expenses to stock compensation. Was there a change in the compensation scheme?

Paul Friedman

No, but it’s just driven by Black-Scholes. So as the evaluation of the company increases and your stock prices higher, it drives the higher non-cash expense.

Eric Schmidt – Cowen and Company

Thanks for that.

Operator

Thank you. Our next question is coming from Cory Kasimov of JPMorgan.

Matt Lowe – JPMorgan

Hi. It’s actually Matt Lowe in for Cory today. Just wondered if you could offer any clarity on timing of the COMFORT-II results and whether you -- Novartis to disclose -- how much information you expect them to disclose when they announce the top-line results of that study?

Paul Friedman

Yes. So, difficult to speak for Novartis, both because they don’t like us to and because I don’t know what they ultimately will decide to do. But you know, they did have what I thought was a minimalist press release on the COMFORT-I results when we put ours out.

So I suspect in the not-too-distant future, once they’ve sifted through the COMFORT-II results that they will put out such a press release. And you know I’m -- I can’t speak for them, but I’m certainly hoping that they will present their results in a scientific form very soon, maybe at ASCO. Hopefully.

Matt Lowe – JPMorgan

Okay. That’s great. Thank you very much.

Operator

Thank you. Our next question is coming from Matt Roden of UBS Financial.

Matt Roden – UBS Financial

Hi. Good morning and thanks for taking my questions. With regard to your market research, Pat, have you been able to tease out expectations for 424 utilization by risk classification? It’s fairly obvious that the -- there’s a great unmet need in the higher risk patients but what are you seeing in your market research with respect to the milder risk patients such as [INT1]?

Pat Andrews

Okay. So, I will say that the risk classifications that we used in our study and that are in the literature are not widespread within the community of practicing oncologists and the hematologists in the United States. And they tend to look at patients and see -- sometimes you know mild, moderate or severe, sometimes they look at them by spleen and symptoms. They look at our host of other factors. So that classification, I wouldn’t say that there is any direct correlation that we’ve seen in our research.

What we have done is we’ve shown target product profiles of ruxolitinib to practicing hematologists, say 200 in the U.S. and gotten their sense based on spleen size and symptom severity whether they would consider this drug appropriate for that patient population. And as you might expect, for the greater -- the larger the spleen and the greater the symptoms, the more likely they are to use the drug, but there was even at levels of very mild symptoms and very small spleen enlargement, there was drug utilization. So look at it as kind of a continuum.

Matt Roden – UBS Financial

Okay. Thanks for that. And then Paul, any progress in terms of being able to identify baseline which patients are chronically inflamed? And it would be perhaps more likely to see an anemia benefit on therapy?

Paul Friedman

Yes. It’s hard to -- we have no way of identifying those people before hand. There’s certainly a minority of the patients. These patients have a failing bone marrow. So that is from a quantitative standpoint, the most important aspect of their anemia. And then there are subset of people who have more -- from the cytokines have -- will have more or less of a contribution of a chronic anemia component and it’s that subset where you could see some mild benefit in hemoglobin.

But, I mean, because of the mechanism, the predominant effect in most patients is going to be a JAK2 inhibition leading to a decrease signaling through the EPO pathway. It’s just at the end of the day, what these drugs do. So I -- there’s -- and there’s really no way to identify who -- who that subset is, who will possibly have mild upticks in hemoglobin when they get treated.

Matt Roden – UBS Financial

So it’s not as straightforward as just looking at CRP levels or other product information?

Paul Friedman

No. We have not been able to correlate that.

Matt Roden – UBS Financial

Okay. Thanks a lot for taking the questions.

Operator

Thank you. Our next question is coming from Thomas Wei of Jefferies & Company.

Thomas Wei – Jefferies & Company

Hi. Thanks. I wanted to ask a little bit more about the low platelet count study, just whatever you can share with us about the design, the number of patients, how the dose titration scheme differs and it sounds like maybe the cutoff for platelet counts at baseline might be 25,000. Any details there might be helpful. And also when you might expect to have data from the study?

Rich Levy

So, the baseline platelet counts that will be allowed into the study will be down to like 50,000. Allowing patients on drugs potentially go down to as low as 25,000 before they would have to take a drug holiday.

In terms of the designs, we’re looking at a couple of different studies. One is kind of almost a Phase I study, looking at dose escalation starting at like 5 mg BID and working up and another one is a larger study that will start with relatively low doses and dose adjust patients right from the start. The first study is likely to start within the next month. The (inaudible) study is likely to start before the end of the second quarter.

Thomas Wei – Jefferies & Company

And would you have the potential for there to be informative data for doctors at the time of the product launch?

Rich Levy

Yeah. Sorry. That was a part of your question and an important part. So, the first study we expect to have data at ASH in 2010 which will be around the time of the launch and the second study, we might have data, but it wouldn’t be -- 2011, sorry.

And the second study would be not ready to submit an abstract at ASH, but there may be other data from that study that could even be more robust because of the larger size of that study. But not, you know, in an ASH abstract most likely.

Thomas Wei – Jefferies & Company

And neither one of them would contain a control-arm?

Rich Levy

That’s correct.

Thomas Wei – Jefferies & Company

Okay. And then just a separate question here on patients with -- who do not have an enlarged spleen. Can you just remind us what your most recent market research says on – excuse me -- the proportion of patients who don’t have an enlarged spleen? And how should we think about the potential utility of 424 in that patient population?

Pat Andrews

So, you know, really, the vast majority of patients do have an enlarged spleen. I think the number is like maybe 70% and then there are those who have had a splenectomy and they tend to have enlarged livers and that is like another 8% to 10%. So at least 80% probably have an enlarged something that the drug helps.

But you know, you might think that you only have symptoms if you have an enlarged spleen. But actually there’s some patients who have symptoms and don’t have any palpable spleen enlargement. And that adds another 5% to 8% to it. So that’s how we look at really the potential market.

Thomas Wei – Jefferies & Company

Thanks. That’s very helpful.

Operator

Thank you. Our next question is coming from Rachel McMinn of Bank of America/Merrill Lynch.

Rachel McMinn – Bank of America/Merrill Lynch

Yeah, Paul, can you just go into a little bit more detail on your comments about sheddase? You said something about doing an analysis of European studies. What is that about? And, I guess, when would you have more confidence -- have you actually made a decision to go into Phase III? It is a little bit hard to tell.

Paul Friedman

Well, no, we would only -- these -- so what this is and the reason we’re doing it and it almost sounds like I say the same thing every quarter because this program has been delayed for a variety of reasons. We have -- there’s a single paper in the literature that points out, I think in a very convincing way, that patients who are HER2-positive and additionally p95-positive do significantly more poorly when they receive Herceptin-based regimens than the patients who are HER2-positive, but not p95-positive.

And then our data which is from a reasonable number of patients, but not an overwhelming number of patients, supports that position, that -- and so, we have the opportunity by getting histologic samples from completed studies with patient histories to determine in a large -- with a large N that this hypothesis is indeed correct before we take the plunge and do a Phase III study.

And so that is what we’re doing now. We are staining and analyzing these samples, doing immunohistochemistry to determine who was p95-positive, who wasn’t, what level of p95 positivity were they and what their clinical outcomes were. And we were fortunate that we been able to get a significant sample set to look at from a variety of completed studies.

And we’ve not made a definitive decision to go to Phase III because these data, we believe, should confirm what we believe is a very viable hypothesis. Rich?

Rich Levy

Yes? Can I make a clarification? So, when Paul said that our data confirm this, our data basically show that whereas the p95s do poorly on Herceptin-based regimens…

Paul Friedman

Right.

Rich Levy

…. in our case p95 plus our sheddase inhibitor 7839, those patients do very well.

Paul Friedman

Right.

Rich Levy

So that said that there is a real divergence between what a control group on Herceptin would do -- Herceptin-based regimen alone would do and when you add our drugs in those p95-positive patients. And so we just need to confirm with a larger data set that the control group is going to do as poorly as this first paper suggests. And that’s what we should have within the next couple of months and then be able to make the final decisions from there.

Paul Friedman

Yeah. So, what he is saying is the control group, our p95, we have to be certain that they do more poorly than those who are not p95-positive.

Rachel McMinn – Bank of America/Merrill Lynch

Okay. That makes sense. That’s very helpful. And just, Dave, I guess in terms of the numbers, does the R&D guidance actually include a Phase III sheddase spend? You kind of hinted at that, but I guess the R&D expenses, does that go up if you decide to go into Phase III? And then also a little bit more clarity on when you are hiring the reps for 424? Thanks.

Dave Hastings

Yes. So the guidance is all inclusive for the studies that Paul outlined. So that would include any initiation of Phase III studies for sheddase.

Paul Friedman

Pat, do you want to address the sales reps?

Pat Andrews

Sure. So we’ve had a VP of Sales onboard since mid last year. And with that, we’ve put in place what needs to be done to recruit the leadership level in the second quarter of this year and the reps in the third quarter. So they should all be on board by the end of the third quarter.

Rachel McMinn – Bank of America/Merrill Lynch

Perfect. Thanks very much.

Operator

Thank you. Our next question is coming from Ying Huang of Gleacher & Company.

Ying Huang – Gleacher & Company

Thanks for taking my question. Going back to your comment on the platelet level because you enrolled only patients who had more than, greater than 100,000 platelets level in Phase III. Do you think that will be on the label when FDA approves this drug?

Paul Friedman

Yeah. We -- if you look at labels for oncology drugs, there -- there’s no precedent for that and we do not believe that that will be the case. It’s a possibility but we think it is a fairly remote possibility. The studies will be described. There will probably be a statement somewhere in the label saying that patients below 100,000 have not, we are not studied in Phase III, but we don’t think there will be a labeling restriction on use.

Ying Huang – Gleacher & Company

Okay. Thank you and then can you give us a little bit more clarity in terms of the size of the potential sales force here for 424?

Pat Andrews

Sure. So we need about 60 reps to cover the market of approximately 7,000 hematologists and oncologists in the U.S. to teach in that patient (inaudible).

Ying Huang – Gleacher & Company

Thank you.

Operator

Thank you. Our next question is coming from Dave Friedman of Morgan Stanley.

Dave Friedman – Morgan Stanley

Hi. Thanks. Just wanted to ask a little bit more about the spending plan. I mean, it looks like the incremental spending year-over-year on the SG&A line is not that dramatic. And given that we have seen some hematology launches cost $40 million plus upwards of incremental SG&A spend, are there things that you guys have identified that you don’t need to spend money on or how are you able to do it with different budget or apparent budget?

Dave Hastings

Well, I’ll just sort of one element of it and Pat you may want to give some further context. But if you think about on the sell side, at least, Dave, the hiring plan is sort of titrated throughout the year. So you are not getting a fully loaded SG&A number. But that said, we are obviously looking to be as efficient as possible with our capital. It’s a very important year for us and so we are being responsible and careful. Pat, do you want to give more context on that.

Pat Andrews

Well, so I’ll just add. I mean, we are being prudent with our spend but that being said, there’s no area that I feel like we are underinvesting in for this launch. In fact, I believe -- you know, Incyte brought me on board more than two years ago which is a long lead time for a company of -- a development stage company to bring on board a commercial person.

And we had been putting in the appropriate resources and staffing all of that time. So I would actually say we are extremely well-positioned to have commercial -- successful commercial launch later this year.

Dave Friedman – Morgan Stanley

So just a quick follow-up if I can, for Dave. So, I mean, I guess what it seems like you’re saying is that your end of year spend is going to be at a higher run rate than your guidance is. Is that sort of a reasonable way to interpret what you’re saying?

Dave Hastings

Yeah. Exactly. It will gradually ramp each quarter, Dave.

Dave Friedman – Morgan Stanley

Okay.

Dave Hastings

The better since for what let’s say 2012 sales and marketing will look like will be the fourth quarter of 2011.

Dave Friedman – Morgan Stanley

Okay. That’s great. Thank you.

Operator

Thank you. There are no further questions. I’d like to hand the floor back over to management for any closing comments.

Paul Friedman

This is Paul. Thanks for tuning in this morning. We -- we’re obviously energized about getting the NDA in and hopefully presenting our results at ASCO and the earlier programs we think are quite promising. We have a mostly binary type decision to make with respect to sheddase, the sheddase inhibitor. And I think by the next time we speak we will probably, unless there’s yet another delay in the program, we will be in a position to clarify where we stand there. In any event, stay tuned and we will keep you updated with our progress. So thanks again for tuning in and good morning.

Operator

This concludes today’s teleconference. You may disconnect your line at this time. Thank you all for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Incyte CEO Discusses Q4 2010 Results - Earnings Call Transcript
This Transcript
All Transcripts