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Incyte, Inc. (NASDAQ:INCY)

Q3 2011 Earnings Call

October 27, 2011 8:30 am ET

Executives

Pamela A. Murphy – Vice President Investor Relations & Communications

Paul A. Friedman, M.D. – President, Chief Executive Officer & Director

David C. Hastings – Chief Financial Officer & Executive Vice President

Richard S. Levy, M.D. – Executive Vice President & Chief Drug Development & Medical Officer

Patricia S. Andrews, M.D. – Executive Vice President & Chief Commercial Officer

Analysts

Rachel McMinn – Bank of America

Matthew Roden, PhD – UBS

Salveen Richter, CFA – Collins Stewart

Corey Kasimov – JP Morgan

Thomas J. Russo – Robert W. Baird & Co.

Joshua Schimmer, M.D. – Leerink

Lucy Lu, M.D. – Citigroup

Bret Holly, PhD – Oppenheimer

David Freidman, M.D. – Morgan Stanley

Analyst for Brian Abrahams, M.D. – Wells Fargo

Analyst for Ian Somaiya – Piper Jaffray

Liisa A. Bayko – JMP Securities

Operator

Welcome to the Incyte Corporation third quarter 2011 financial results conference 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 of Investor Relations and Communications of Incyte.

Pamela A. Murphy

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, Executive Vice President, Chief Commercial Officer. To begin, Paul will provide a brief review of the third quarter, then Dave will follow with a discussion of the quarter’s financial results. We’ll 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 are forward-looking statements including, statements regarding our plans and expectations for our drug development programs, the timing of clinical trials, regulatory submissions and anticipated launch plans, the potential safety and efficacy of our compounds, as well as our expected financial results. 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 10Q for the quarter ended June 30, 2011 and from time-to-time in our SEC documents.

Paul A. Friedman, M.D.

Obviously, our top priorities right now are to secure approval for ruxolitinib for treating myelofibrosis and being fully prepared for the product launch. And with respect to the NDA, I remain highly confident that the FDA will reach a positive decision on or before our PDUFA date of December 3rd. Our launch preparations are very far along. All 60 reps are hired and well along in their training. They comprise a highly qualified group with an average of more than 18 years experience in industry and more than 11 years in hematology and oncology sales.

We finalized contracts with a selected group of specialty pharmacies and we’ve also set up a central hub to assist providers and patients in navigating paperwork like verifying benefits, helping with prior auths, and if necessary assisting with the appeals process. The hub will also help patients connect with programs that assist with out-of-pocket costs. In terms of manufacturing and supply, the tablets are made, the bottles are ready to go, all we now need is the final package insert and we’ll be ready to launch.

Moving to our ruxolitinib Phase III trial in advanced polycythemia vera patients, we have received just this week, confirmation that the FDA has agreed to our protocol amendment and this will not affect the SPA already in place. So a really good outcome. The amendment changes entry criteria, number of patients to be enrolled, and the duration of follow up. But it does not change the primary or the key secondary end points. You’ll recall that the Phase II data stunningly shows that these end points are reasonable in a highly statistically significant way for us in this study.

Specifically, the entry criteria now eliminate the need for patients to have either an elevated white blood cell count or platelet count, or to have a palpable spleen length of at least five centimeters. That entry criteria on spleen size now only requires a palpable spleen with MRI or CT confirming that the volume is at least two times larger than in normal adults. The number of patients to be enrolled is reduced from 300 to 200, and importantly, the duration of follow up is reduced from 80 weeks to 48 weeks.

To remind you, the primary end point is based on response rates at 32 weeks with responders defined as patients who both became phlebotomy independent and had at least a 35% reduction in spleen volume. The key secondary end point of durability of this response remains unchanged except as I said, that durability will now be assessed at 48 rather than 80 weeks.

Prior to drafting the amendment we determined that the requirements for elevated white blood cell count and platelet counts, and to a lesser but significant extent, spleen length greater than five centimeters were leading to a larger number of ineligible patients. With this amendment we expect enrollment to increase markedly. The reduction in the number of patients and the shorter duration of follow up keeps the timeline on track to complete the study and submit the supplemental NDA in the second half of 2013.

Now, we have a number of other ruxolitinib trials underway and many of these are described in the press release. If anyone has specific questions about the design or status of these programs, Rich and I would be happy to respond during the Q&A. Now, moving to our earlier oncology programs, in September we announced we wouldn’t advance the Sheddase Inhibitor 839 into Phase III development in metastatic breast cancer.

Our Indoleamine 2, 3-dioxygenase 1 or IDO inhibitor and the oral c-MET inhibitor, the latter partnered with Novartis, continued in Phase I dose escalation trials in patients with solid tumors and we’ve not reached the maximum tolerated dose for either compound. For the IDO inhibitor we’ve decided to move forward with two Phase II trials in 2012. The first will be in patients with melanoma, followed by a trial in patients with ovarian cancer, and both of these studies are likely to begin next summer.

[For our] inflammation program involving Incyte 28050 and other selective JAK1 and JAK2 inhibitor, as you know it’s partnered with Lilly. The phase IIb trial in rheumatoid arthritis is fully enrolled and while we can’t speak for Lilly, we’re hopeful that the data could be presented at a future medical scientific meeting, possibly at [ULAR] in 2012. Now, I’ll turn the call over to Dave Hastings.

David C. Hastings

I’ll start my very brief overview this morning by discussing our cash position. We ended the third quarter with $317 million in cash and investments. That excludes $28 million in restricted cash and investments held in escrow for interest payments through October, 2012 on our 4 ¾% convertible senior notes. Our cash use this year has been $138 million, excluding $16 million in proceeds from stock option exercises and a $15 million milestone payment received from Novartis for the c-MET inhibitor program.

Our cash use so far this year is on plan, right on track and our cash use guidance for the year is unchanged at $185 to $200 million. As always, this guidance excludes actual and potential milestones received from partners and proceeds from stock option exercises. Our operating expenses were also in line with our expectations and we’re not changing guidance for either our R&D or our SG&A expenses. With that Paul, I’ll turn it back over to you.

Paul A. Friedman, M.D.

Operator, let’s open the call for questions now please.

Operator

(Operator Instructions) Your first question comes from Rachel McMinn – Bank of America.

Rachel McMinn – Bank of America

I apologize if you said this at the beginning of the call, I might have missed it, but for the PD study, are the physicians going back and rescreening the patients that had failed initially? Are you actually seeing that or is it just kind of too early to know if that’s going to happen?

Paul A. Friedman, M.D.

Well, that’s exactly what we’re expecting to have happen. The amendment has to go back through the IRBs, in the meantime, we’ll continue to recruit from the original protocol. But quite a few patients are sitting on the sidelines who failed the first time around and that’s why we made the comment that the study should now recruit fairly quickly.

Rachel McMinn – Bank of America

Then a question maybe for Pat, I guess can you just talk about some of the pre market education efforts that you have going on for ruxolitinib right now? Assuming an on time approval, what are you going to be doing at ASH? Is your focus more about the drug or more about the disease? If you could give us a bit of a sense of how you’re educating the market.

Patricia S. Andrews, M.D.

Pre market of course you can’t talk about the product or anything associated with it so the focus has been on disease education, myelofibrosis and what causes it. What some of the symptoms and consequences are of it and how it is a part of myeloproliferative neoplasms, things along those lines in a number of different forms, online significantly. And then at ASH, we would expect of course, the product to be approved since we have a PDUFA date of December 3rd and ASH occurs afterwards. ASH would have a booth where the product would be there as well as of course, medical information for additional questions that we’re not able to answer from a promotional perspective.

Rachel McMinn – Bank of America

One last question, Paul, any early insights into the c-MET program in terms of activity?

Paul A. Friedman, M.D.

Rich, do we have anything we want to say?

Richard S. Levy, M.D.

The Phase I is an unselected group where we’re not determining whether there are tumors – you know have abnormalities in c-MET to begin with. So we’ve seen some positive data but in terms of quantifying it, you really can’t relate it to what the response rates, etc. might be when you have a select group of patients that you already know have abnormalities in c-MET function.

Paul A. Friedman, M.D.

But I will say, we have succeeded in giving the drug once a day and having trough levels at the IC90 concentration which was our objective and it’s been well tolerated. So in terms of straight up c-MET inhibition, it’s going to be hard to inhibit that target any more effectively than is being done with this drug and appears to be well tolerated while we’re doing it.

Operator

Your next question comes from Matthew Roden, PhD – UBS.

Matthew Roden, PhD – UBS

I was wondering if we could talk a little bit about the forthcoming label in MF and what it means for eligibility in myelofibrosis? So can you remind us what the exact indication is that you’re seeking and based on your discussions with the FDA whether or not you think a broad label is still achievable? Then related to that Pat, assuming you’ve been in dialog with payers in the lead up to the launch, are you getting the sense for what will be required for reimbursement? Will there be a minimum spleen size, to an extent will patients need to be symptomatic, will payers determine a minimum platelet count if not specified in the label? So maybe if you could just talk broadly about what you think the eligibility will be from the label and from the payer perspective?

Paul A. Friedman, M.D.

So we’re not in a position right now to be expansive on what the label is ultimately going to look like. What we asked for was for a very broad label to treat all patients with myelofibrosis. And, we would expect to have something approximating that or that exactly, but it’s just premature to be talking about that. I’ll let Pat expand on the other aspects of the question, but we just can’t get into those discussions with you right now.

Patricia S. Andrews, M.D.

For an oral drug it’s really about what coverage it gets and coverage will generally fall into what Medicare does and what commercial payers do. And for Medicare, ruxolitinib is of course, an anti neoplastic so it falls into being a protected class and in protected classes they cover all drugs in a group so one could be highly confident based on historical precedent that it would be covered under Medicare. Commercial plans, they generally follow suit but they look at it in terms of what tier placement does a product get. Tier-II, Tier-III, Tier-IV, they have different level of co-pay or co-insurance. And the commercial plans, particularly because this is the only product that treats this disease, would be highly, highly, highly likely to cover it, it’s just a question of which tier it would go on and that is something they determine later.

But to be honest, they don’t usually determine it based on how expansive or narrow your label is. They usually just have a place where they put oncology products and that’s where it goes. So within that they also follow what your label is so if it’s a broad label it’s broad coverage.

Matthew Roden, PhD – UBS

Then related to that also, I imagine in the pricing work that you guys have done you guys have talked a little bit about thoughts on pricing. Have you looked at this sensitivity to various price points to end user demand assuming certain co-pay levels and also tiering, and then Medicare coverage as well?

Patricia S. Andrews, M.D.

Yes, we have. That would be a critical part of the work we have done. We’ve completed very thorough research. We’ve done it at a couple of points in time. We’ve done it most recently with a number of payers representing a substantial number of lives and with all that we have a good sense at different price points what the coverage and restrictions would be. We’ll of course not set the price until we have final approval.

Matthew Roden, PhD – UBS

But I guess it’s safe to assume that the pricing strategy that you come up with is one where you assume there would be sort of no suppression of end user demand or coverage?

Patricia S. Andrews, M.D.

We would want to make sure that our price doesn’t restrict unnecessarily the products availability to the public. And when I say restrict, I generally mean prior authorizations, because as I’ve already said, Medicare is going to cover it and commercial plans are likely going to – nearly all of them cover it. It’s just a question of what restrictions they put on it. So even if a drug is a Tier-II or Tier-III which has a co-payment of maybe $30 to $50 they could still put prior auths on it. The most common prior auth which is very easy to live with is that they have to have a diagnosis of myelofibrosis.

So we wouldn’t want there to be significantly other restrictions on the product and that does have a level of price sensitivity to it but we know what those sensitivities are and we’re very comfortable with what level of flexibility we would have in pricing this drug which we will do later when assuming it gets approved.

Operator

Your next question comes from Salveen Richter, CFA – Collins Stewart.

Salveen Richter, CFA – Collins Stewart

I have two questions, firstly in terms of response how do the changes impact the powering of the study and also, what’s the rational for changing the follow up period?

Richard S. Levy, M.D.

The power of the study actually hasn’t affected much at all even though we’ve gone from 300 patients to 200 patients because when we initially powered the study we were not aware of what the response rate in terms of spleen size reduction would be with the sort of best available therapies that were used in COMFORT-II that are some of the same drugs that would be used in PV. Since that response rate was in fact, zero in COMFORT-II, we’re not assuming it’s going to be zero here but the assumption is it’s going to be lower than we originally assumed. The power for the primary end point is still around 95%.

Salveen Richter, CFA – Collins Stewart

Then I guess for Pat, on the launch, how do you intend to target communities and collages and educate them on MF, JAK and ruxolitinib?

Patricia S. Andrews, M.D.

Salveen, we do have a field force of 60 reps in place with significant experience both in industry and in hematology and oncology. In fact, nearly all of them, we hired them for territories they were in with their previous employer. So in many cases they actually already know the physicians. Certainly they know the office and the facility for the majority of their new physicians that they would want to be targeting for Incyte. So with that, we’ll be sending them out with their new information on both myelofibrosis and on ruxolitinib, and that will be a major source of dedication for the community oncologists.

We have supportive materials to help them understand what the product is indicated for, how they can get it, what the distribution system is, how they would dose it. We have a call center, if they have questions. Medical information is set up. We have everything in place to be able to facilitate their easy understanding of the product and starting to prescribe it.

Paul A. Friedman, M.D.

The other part of the first part of the question you asked, why the observation period for durability was decreased from 80 to 48 weeks, and we did that because the data from the ongoing Phase-IIb trial, the data from the COMFORT trails indicates that as long as you stay on your tolerated dose of drug, spleen size if anything, continues to get smaller. At a slower rate, but it continues to get smaller and we haven’t loss the phlebotomy response so we convinced the FDA that 48 weeks was enough consider the fact that there will be a significant number of people, when the last patient exists the study at 48 weeks, who have in fact got to 80 weeks. So we’ll have a subset of people to show them at 80 weeks and that was sufficient. It’s good for us because it keeps us on our timelines.

Salveen Richter, CFA – Collins Stewart

If I can just ask one more follow up. I know you’ve retrospectively identified MF patients. Are they mostly in community or academic centers? And, has any work been done to reach out to these patients?

Patricia S. Andrews, M.D.

They are mostly in the community. Very typically for a lot of cancers, the patients are primarily treated in the community, because that’s where the doctors are. There are a lot more community docs than there are academic hematologists oncologists. We have had – because the disease has had no effective therapies there’s not been a lot of materials out there to help people who have the disease understand it better so we did have a disease education website up for both professionals and for patients, or caregivers, or whomever was interested in the disease and we did have a number of them sign up and ask us for us to communicate with them in the future as new information comes out.

It’s not an insignificant number but it’s not a huge number either. We would probably not reach out directly to patients, we would more likely be working through physicians because they are the better audience to start with on a new medication. So that’s where our focus would be, not really on the patients initially. That being said, we know that some of the advocacy groups do follow what’s happening with ruxolitinib because they’re very interested in having the first approved therapy for their member group and it would not be surprising to me if they communicate, or other organizations also following this communicate with patients. But Incyte, would not do that much initially directly to patients unless they has sought it out by coming to us.

Operator

Your next question comes from Corey Kasimov – JP Morgan.

Corey Kasimov – JP Morgan

Mine are probably for Pat as well, the first one is following up on Salveen’s question. When you think about the community, do you have a good feel at this point how the awareness is amongst community docs prior to the launch for ruxolitinib specifically, not just the disease itself? And I have a follow up to that as well.

Patricia S. Andrews, M.D.

Yes Corey, we have a good understanding of the awareness because we periodically survey a subset of doctors, sometimes we attract the same ones, sometimes we open up and do a different set each time. From that we’ve seen an increasing knowledge certainly of JAK inhibition and its role in MF. That’s increased really significantly over the past couple of years. I will say awareness of ruxolitinib remains low and that is of course, because we do not, in any way, focus in on that product. We have always only spoken about the disease. So it is not surprising that there is that gap in awareness.

Keep in mind that for most community hematologist oncologist, MF is a very, very small percentage of their patient population. And they see a lot of patients and they have to keep up and current with all of these other medications and treatments. So they tend to focus less on things that are in development that don’t immediately affect their practice, their patients. However, that will change very dramatically once the product gets approved and we can talk about it, and it is available for them to use.

Our research suggests that in fact, you know, within six months 90% of the physicians we’ve surveyed has said they will try the product on at least one patient. So I do expect that dynamic to change dramatically after approval.

Corey Kasimov – JP Morgan

Then from a patient standpoint, do you have a sense here of just how motivated the moderate to severe MF patients are in terms of seeking therapy?

Patricia S. Andrews, M.D.

Well, they are quite motivated because they really have a significant burden of disease. It’s really a massive splenomegaly, it’s many folds larger than what their spleen should be. They probably have a significant assortment of symptoms that would keep them up at night, which make them lose weight, which make them find it difficult to walk and to move around. A lot of them would be following, or trusting that their physician is following what is happening in this space and they will have a lot of incentive to want to understand this product and whether or not it would benefit them.

Corey Kasimov – JP Morgan

Then lastly Paul, I’d just be interested to know whether or not you’re surprised the FDA decided not to convene a ODAC panel ahead of your December 3rd PDUFA?

Paul A. Friedman, M.D.

I’ll answer that in a second. I would add to Pat, we do talk to the people who run the foundations, the myeloproliferative neoplasm foundation and it’s pretty obvious that the patients are very aware of this. They’re very, very excited about the possibility of having a drug that for the first time impacts their disease. And so there is a lot of interest out there. Is it universal? No, we’ll have to do some good marketing to bring it there, but I think we’re off to a pretty good stop and it’s not [inaudible] for sure.

On the ODAC, I’m actually not surprised at all because it seems to be a direction that the agency is moving in and especially the oncology division because if you run one of these things under an SPA, you meet your end points, the safety is adequate, there are frankly not that many questions to ask that the revealing group, the division at the agency cannot handle and routinely handles anyway. And so it sometimes becomes a dog and pony show that is just not necessary.

There have been three or four drugs in the last year, three of them I think are oncology drugs where they’ve been approved without a panel being called. We thought in the beginning that we’d have one and I guess it’s always still conceivable that you could have one but I’m not surprised that it appears that we’re not going to have one.

Operator

Your next question comes from Thomas J. Russo – Robert W. Baird & Co.

Thomas J. Russo – Robert W. Baird & Co.

Back over to the response trial, I just wanted to check in, is Europe on board with those changes too or do they need to be? And then, what percent of the PV population meets the revised entry criteria?

Richard S. Levy, M.D.

Europe is on board with it. It is one trial so it all has to be done according to the same trial. Remember that there is no official SPA process in Europe but the buy in is still there. And with respect to the percentage of patients, I mean actually this broadens the number of patients that would be within the study and therefore potentially within the label depending on what that is defined as. And we’ve always felt that the percent of patients who are [inaudible], or resistant, or intolerant is in the range of high 20% to low 30%.

Thomas J. Russo – Robert W. Baird & Co.

Paul, I’d be interested also now that the New England Journal letter has been out there for a few week kind of broadly if you have any take on that? Any potential impact you might see in the marketplace? And then, maybe any update on when your Phase-III data is expected to be published.

Paul A. Friedman, M.D.

You mean the non peer reviewed letter in the New England Journal? There are some pretty squirrely letters in the New England Journal. Yes, sure that didn’t impact our stock positively. Let me just go through a couple of things and just say we know all the data that’s in that screed and the FDA knows all that data. We’ve analyzed that data upside and down before we put the NDA in and reviewing it again after the letter appeared.

And at the right time, which this is not, we will show you all the data and you will see that it completely supports everything that we’ve said and concluded about what ruxolitinib does. It’s not the time in the middle of an NDA review to be displaying a lot of data that is in the NDA. But what I will tell you is I’ll give you some top line points about that data. Firstly, what it shows is that if you don’t keep your patients on the drug their symptoms will come back and their spleens will begin to grow again. We’ll be able to show you how many patients came off when and it will be a fairly eye opening result for you.

Secondly, if you don’t give enough drug you will not get a maximally effective response in either spleen reduction or in symptom control. I think there’s a very cogent example of that in the YMI program which is what I’ve been telling you for over two years, that they were very low in the dose response curve and now they’ve doubled the dose and gone back and done Phase II over again. If you were down on that part of the dose response curve, dosing with ruxolitinib you wouldn’t get a maximum response either.

Thirdly, if you did not keep your patients on drug for any decent length of time and then you use them as subjects for a survival curve, the results are fairly meaningless. And then lastly, with respect to the five sick patients who were hospitalized when they stopped drug that were described in the letter, you can find several of them in the appendix to the New England Journal paper where Dr. Tefferi was a senior author and Dr. [Pugnani] was also an author. The authors agreed that that’s where that data belonged because you have space limitations in those manuscripts.

We took those cases very seriously when we designed Phase III. We designed Phase III to look very closely at the possibility that there could be a withdrawal syndrome. In Phase III and also frankly, at MD Anderson which amounts to over 400 patients who have been on the drug for a long time and some of them who had to stop for [inaudible], we found not a whiff of evidence for a withdrawal syndrome.

These patients in the beginning were very sick patients with multiple possible causalities for what led to their clinical outcomes and complications. Only one of which could have been the drug. However, in Phase III we looked very hard for that and there’s no evidence for it whatsoever. If you look at the data that was presented by [Srdan Verstovsek] twice at ASCO, during the day during his presentation and then during the analyst affair we had that evening he showed a very interesting slide that bore on that data specifically, what happens to the symptomatology of patients who stopped the drug.

And what happens is exactly what you would predict if you stop taking a drug where you haven’t cured the disease, and that is symptoms will slowly recrudesce back to base line. There was no evidence for a rebound and it is what you would have expected to see despite how it’s been misrepresented by some people. So we’ll get into that data in much more detail for you at a later date but suffice it to say there is nothing in there that is unknown to the FDA or to us, and there is nothing in there that changes in anyway, either the efficacy or the safety profile of the drug.

Richard S. Levy, M.D.

Just to the last part of your questions, in terms of publication, we don’t have a precise date yet but it will not be before the PDUFA data and not before ASH.

Operator

Your next question comes from Joshua Schimmer, M.D. – Leerink.

Joshua Schimmer, M.D. – Leerink

I guess Paul, when you refer to getting into some of the MF data at a later date, presumably post approval, do you plan on publishing the data minus the Mayo Clinic experience and one might suspect if you exclude all the patients from that center, the rest of the patients would look like they’ve done remarkably well and perhaps response do the New England editorial after the drug is approved with that data? That would be very useful for us to see I think.

Paul A. Friedman, M.D.

What we’re obviously going to do – to respond to a letter the rules in the New England Journal require you to do it within three weeks. We’re not in a position to do that with the NDA under review. I think what we do is we present our data holistically and then we show what we found at MD Anderson and what we found at Mayo and why the differences are there. And the differences are perfectly logical differences that you would expect based on different behavior.

Joshua Schimmer, M.D. – Leerink

And it sounds like differences that could help inform the community on how to optimally use the product?

Paul A. Friedman, M.D.

I would say. I think it’s pretty obvious.

Joshua Schimmer, M.D. – Leerink

One other question, there’s probably like 30 other inflammatory indications that could benefit from 050, arguably some of them have a higher need than [RA]. Can you talk a little bit about how you and your partner are thinking of prioritizing them and ultimately developing for those indications and moving past the [RA] indication.

Paul A. Friedman, M.D.

Well, that’s a little awkward because of the way the partnership is. I mean, it really has to be Lilly that opines on that. I mean, there’s some obvious areas to go for that Pfizer may already be in and I’m sure that beyond those, and those are attractive, there are areas where Lilly would like to go that Pfizer hasn’t gone just to do something that differs. The obvious ones when you see what’s happened are xerosis, the inflammatory bowel disease, there are the arthritis, and then there are some other things that I am just not at liberty to talk about and they would have to be the ones who would talk about it.

Operator

Your next question comes from Lucy Lu, M.D. – Citigroup.

Lucy Lu, M.D. – Citigroup

Just switching gear a little bit about to the PV, the response study, I guess I didn’t hear it correctly, but you said you were throwing out the five centimeter splenomegaly requirement. Did you still say that patients need to have twice the normal size of spleen? I just want to understand if that’s even a palpable spleen?

Richard S. Levy, M.D.

Yes, they have to have a palpable spleen unless they’re clearly obese in which case you could just go directly to measuring the spleen by MRI or CT and it has to be at least kind of twice what the normal range is. Now, if you think about the spleens in MF, those are about 10 times normal size. We also know that in our MF experience where there’s a range of spleen sizes that base lined, the smaller spleens are just as likely to decrease by 35% as the larger ones so we don’t think this hurts us in any way in terms of the overall response rate and it opens it up to more patients both in terms of the study and in terms of the implications for what the patient population would be after approval.

Lucy Lu, M.D. – Citigroup

So if that’s the case Rich, are you changing requirements for white cell count or platelet count? I mean, just looking at the other entry criteria besides the spleen and also what you said, I’m just wondering if there are other major changes to other markers?

Richard S. Levy, M.D.

So just to be clear, the original protocol said that you not only had to have a blood count and a platelet count above the upper limited normal, it had to be substantially above the upper limited normal. And there are patients who have platelet counts and white counts that are above the limited normal but not to this extent that we had put into the original protocol. But this protocol no longer cares what your base line platelet count is. It can be normal, it can be slightly above, and it will still include those patients that have the particularly high white counts or platelet counts.

There were other trivial wording changes to the protocol that are largely clarifications that have no impact and we did not go through every single one of those. But what you’ve heard today is really everything that is important.

Lucy Lu, M.D. – Citigroup

Then the last question is obviously, you’re changing the sample size from 300 to 200 but maintaining the power, does that mean the assumed treatment effect is higher? Can you just give us a little bit more detail on the assumed treatment effect for the response study?

Richard S. Levy, M.D.

We’re not really changing our assumed response rate with ruxolitinib. We’re changing the assumed response rate for best available therapy downward to account for essentially the same power. As I said before, in COMFORT-II where we used best available therapy the number one of those drugs being hydroxyurea, the response rate in terms of 35% or greater reduction in spleen volume was zero. This primary end point, you have to accomplish two things at the same time to be a responder. You have to become phlebotomy independent and you have to have a 35% reduction in the volume of your spleen.

So when we designed the study we didn’t know what the response rate on the control arm of COMFORT-II was going to be. Now that we knew that we said we were way over powered at 300 and it’s clear that the FDA agreed with our changes to the protocol.

Operator

Your next question comes from Bret Holly, PhD – Oppenheimer.

Bret Holly, PhD – Oppenheimer

I guess I’m just wondering have you gotten the feedback from KOLs on the alternations to the response trial protocol? Are they comfortable with the outlines you’ve given today? Specifically, I guess I’m wondering is 48 weeks adequate duration in their mind? I guess I’m asking for more of a commercial perspective longer term.

Richard S. Levy, M.D.

Let me just try to answer this from a people we’ve actually talked to perspective and then perhaps Pat might want to add something but probably not. So we have talked to a large group of both investigators who are experts both on the US and European side before making any changes to the protocol and had their buy in. In fact, there is a consulting group on the protocol that doesn’t allow us or Novartis to make changes without the buy in of those people, so they’re comfortable with it.

The second thing is, as Paul said, you know we’ve had patients enrolled in this study from as early as October 2010 and we’re going to go into kind of close to the middle of 2013 before this data gets cut off so there will be durability data on patients beyond 48 weeks that we’ll be able to talk about and show that it’s long lasting. Plus, you still have what we call Study 256 which is a Phase-II PV study which started several years ago, I don’t remember how far patients are out but they’re out more than two years now, I believe, and those patients are still going strong. So there will be a lot of data showing the durability.

Operator

Your next question comes from David Freidman, M.D. – Morgan Stanley.

David Freidman, M.D. – Morgan Stanley

Just regarding the timing of the PV study and when you look longer term, so it looks like you made it a smaller trial with shorter follow up but the timelines for filing or data are still the same so I’m wondering is that a function of the delay that you’ve already seen to date in terms of slower enrollment than originally expected and then needing to go back and change the protocol? Or do you expect going forward that you would still have a slower enrollment trajectory than you originally thought?

Paul A. Friedman, M.D.

It’s the former issues. I mean, we have had a delay in the current, you know we thought we would be much further along in enrolling. Now, we have to make up for that and before we can do that we have to get through IRBs.

Richard S. Levy, M.D.

And the IRB process, I mean some of the central IRBs will probably approve the protocol within a couple of weeks and those patients will start coming in quickly. Others will take a little bit more time because they’re local sites and in some cases it will take longer. So it’s not as if everybody is just going to come in two weeks, but we fully expect that this will put us right back on track with where we were before.

Operator

Your next question comes from Analyst for Brian Abrahams, M.D. – Wells Fargo.

Analyst for Brian Abrahams, M.D. – Wells Fargo

I would appreciate it if you could give us an update on the status of additional ruxolitinib studies in MF, particularly studies of patients with low platelets? We also noticed that there’s a new study in clinical trials on alternative dosing, it would be helpful if you could discuss the rational of the study, whether the study was borne out of observations from the COMFORT studies, and what types of results you’d be looking for?

Paul A. Friedman, M.D.

I’ll let Rich answer but just let me start. For the alternative dosing, although we studied once a day early on at I think 50 milligrams worked pretty well you get a very high peak to trough for the immediate release and because some of the would be competitors were dosing once a day we thought it was prudent to see what a sustained release formulation for this compound, relatively easy to make because it has some solubility, would look like both with respect to efficacy and safety. It may turn out that you want a peak and a trough and you don’t want to be inhibiting the enzyme above a certain percent all day long. But we thought we’d look at that and so that’s what we’re kind of doing in that study. On the platelet study I’ll let Rich answer that.

Richard S. Levy, M.D.

The original COMFORT studies only allowed patients whose base line platelet counts at or above 100,000. And although we treated patients whose platelets count dropped to below 100,000 successfully in that study, we also wanted to be able to get additional data to help guide dosing in patients who have less than 100,000 to start. That study is ongoing. It’s not in a position where we’ll be presenting data at ASH this year. I think we will probably be presenting data by ASCO this coming year. But I can tell you that patients are tolerating doses reasonably well without patients having to drop their platelet counts so low that they need to come off drug. So that study is going well.

Analyst for Brian Abrahams, M.D. – Wells Fargo

One more question, how much of ruxolitinib’s pricing assessment and decisions are coordinated with Novartis? And how do you see you EU pricing and US pricing playing out relative to each other?

Patricia S. Andrews, M.D.

So of course, we have a great ongoing dialog with Novartis on key issues and pricing does come up but the reality is the markets are on very different places and Novartis may have a different approach than Incyte does and that’s perfectly fine. That being said, we’ve not been far off in how we look at things. But you would expect to see differences between the United States, and Europe, and the rest of the world.

Operator

Your next question comes from Analyst for Ian Somaiya – Piper Jaffray.

Analyst for Ian Somaiya – Piper Jaffray

Just a couple of quick ones, I wanted to come back to MF and we talked a little bit earlier about pricing and price sensitivity. I was just wondering if you could give some color on patients and describe for us a little bit sort of the socioeconomic background of a typical patient, what your take is on typical price points on other drugs for community hematologist use, and then sort of linking that how we might want to think about the impact of the Medicare donut hole on 1H12 or first half 2012 sales?

Patricia S. Andrews, M.D.

The MF patients are generally older than the population as a whole. We believe about 60% are going to be over 65. So when you look at the socioeconomic background that they come from you have to factor in that age is a variable. Putting that aside, what we did for pricing is a number of different ways of looking at what is an appropriate price for our drug. One of them is to show a blinded product profile of your product to a variety of payers and physicians and say, “When you see a product that looks like this with these types of benefits what other products do you think of?”

And there wasn’t a consensus answer for ruxolitinib. It’s not like everyone we talked to gave the same product, there was definitely a pretty wide range of products that they gave. When one looks at what the most common responses were, they were generally the reference products were the CML products so Gleevec, Sprycel and Tasigna. So that’s one data point that we would incorporate into our thinking. And those products are particularly, Gleevec of course, but the other two too are widely used in practices where we would be expecting ruxolitinib to be too.

So they’re very used to using oral oncolytics and what the process is for making sure that the patients can get those products, and what coverage looks like, and dealing with the managed care issues associated with that. So in all of that our products is just very similar in process to some others that are out there so that is nothing that will be new or surprising to them. Then on Medicare, you had asked about the donut hole in the process that patients need to go through. Again, that’s independent of our product, I mean there is a standard benefit design out there for Medicare patients and usually products that are over $600, and I think that’s a year but it could be a month, over that amount fall into this standard benefit design.

So oral oncolytics are nearly always in that category and it does mean that the patient would have some level of deductable and co-insurance and then they would enter into a donut hole. And based on changes in the law last year, they would have to pick up about 50% of the donut hole costs and the rest of it is picked up by the manufacturer which means that they might have outlay of $2,800 or more by the time they’re actually through the donut hole and that can be a significant amount really for anyone, but maybe Medicare patients you might think of some of them being on fixed income. Maybe it is more significant for them.

The way the laws are set up, manufacturers cannot directly help people covered by federal government programs so we would not be able to directly help Medicare patients. In recognition of this, sometime ago a number of charitable foundations took on as part of their goals, is to help Medicare patients be able to manage the cost associated – not just drug costs, the costs associated with their illness. And so those charitable foundations are in effect and Incyte recognizes the challenge that Medicare patients have and we would of course try to do what is possible to help through the foundations and the foundations supporting the MF community.

Operator

Your next question comes from Liisa A. Bayko – JMP Securities.

Liisa A. Bayko – JMP Securities

Just a little bit more about the MF market as we’re anticipating a launch here in the near term. Can you talk about what gives you confidence about the patient numbers, how you get to your patient number assumptions in the US? And then maybe could you further break that down into those patients, I don’t know how you think of it, but are they all addressable? Is there sort of a mild, to moderate, to severe, or is there some of those that are maybe halve more severe splenomegaly or what’s the break down in terms of the available patient population?

Paul A. Friedman, M.D.

I’ll let Pat elaborate on what I say. We’ve done obviously, a lot of research identifying numbers and are really quite confident that we’re dealing with a population that is in the 17,000 to 18,000 range of registered and known patients. If it’s anything like the CML market, where that being a disease that’s frankly, a lot easier even to diagnose than MF but there was no effective therapy, how many more patients actually existed once there was something that worked, so we would – I mean, I’m anticipating that that same phenomena will play out here. But, just assume 17,000 to 18,000 people. About two thirds of them are exactly what we studied in the COMFORT trials, they’re intermediate II and high risk patients.

Every one of those, if there’s not a contra indication, would benefit from the drug. Intermediate I patients and low risk patients make up the remaining 30% divided equally and I think Pat has said, that we think we have something to offer and the drug should be reasonably attractive to the Intermediate I risk people. Many of them have spleens and they can have constitutional symptoms. The low risk people we thought that would be a tougher climb at first and I don’t think we’ve gotten publically into what our market research says about penetration rates in that group but obviously that’s not the low hanging fruit.

But, it actually turns out that over half of those people have splenomegaly and you would expect it – although they can have constitutional symptoms you would expect the symptomatology related to the big spleen. So that group could be attracted to the drug as well but that’s going to be upfront the hardest group to make heavy inroads into as you would expect.

Patricia S. Andrews, M.D.

I would just add, earlier we had talked about moderate to severe MF patients, they really have a significant burden of disease and we have always expected that both first use and greatest use would be in those two populations and then over time it would go to maybe patients who have slightly less burden of disease. So we’ve always unfolding in that way. That’s the only thing I would add to Paul’s comments which were very competent.

Liisa A. Bayko – JMP Securities

Just as we think about what the shape of the launch curve could look like, can you maybe discuss any hurdles or barriers that you anticipate that you’re going to have to overcome at least let’s say for the first year, maybe the sense of urgency to treat? I don’t know if there’s any other reimbursement things that we need to think about? The frequency of visits the patients tend to have with their physician? I don’t know if age plays a role kind of in the level of awareness, those kinds of things?

Patricia S. Andrews, M.D.

When you think about the market, and we talked about these moderate and severe patients and how burdensome the disease is for them and how often do they come in and see their physician, and it could vary. Probably the severes are really in maybe once a month but maybe moderates are in every three months or every six months and over time they’ve kind of got accustomed to living with their illness. That more so than almost anything else, is the thing that makes this a slow and steady uptake because physicians are not going to call in these patients, the majority of physicians are not going to call in their patients and say, “There’s a new therapy come and get it.”

They’re actually going to wait until the patient comes in during their normal cycle time and they’re going to redo the blood test, and they’re going to talk to the patient about putting them on drugs, and they’re going to put them on a drug, and the patient is going to come back in three of four weeks and over time the physician will get comfortable with this drug and this patient and then they’ll expand a little bit more. But they’re not going to put everyone on at once. They’re going to want themselves to get familiar with the drug and how it works, and who will it work best in, and why, and what additional care and treatment will they need, and all of those things. They do take some period of time. So that’s how I see it unfolding.

Liisa A. Bayko – JMP Securities

Just finally, have you gotten any feedback, and obviously you won’t be promoting it in this way, but the level of interest of using the drug perhaps in off label fashion in PV?

Paul A. Friedman, M.D.

We have our compliance officer in the room here. There will be some but we have to be very, very careful about that.

Operator

We have no further questions at this time. I turn the floor back over to management for closing comments.

Paul A. Friedman, M.D.

Thank you all for tuning in today. Obviously, we’re ready to go, we just have to get over the finish line and we’re hoping to be talking to you again very soon. I’d say with that, stay tuned.

Operator

Ladies and gentlemen this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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