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Incyte Corporation (NASDAQ:INCY)

Barclays Capital 2012 Global Healthcare Conference Transcript

March 13, 2012 2:00 PM ET

Executives

Pat Andrews – Chief Commercial Officer

David Hastings – Chief Financial Officer

Analysts

Ying Huang – Barclays Capital

Ying Huang – Barclays Capital

Okay. Good afternoon. My name is Ying Huang and I’m the U.S. Biotech Analyst at Barclays. Thank you for joining us. And we’ll kick off with Incyte Pharmaceuticals. So it’s my pleasure to introduce the Pat Andrews, the Chief Commercial Officer from Incyte, as well as David Hastings, Chief Financial Officer of Incyte. And we have decided to use the so called fire side chat format. So it’s going to be Q&A webcast.

So let me start the question with you, Pat. Can you provide an update on the insurance coverage for Jakafi to date?

Pat Andrews

Sure. So, after launch for about 90 to 180 days, insurance claims are usually processed as exceptions and that’s the period of time that we’re still in. They’re just starting to make formulary decision. So you can’t always read into what’s happening during the exception phase, as what will happen once the decisions have been made about formulary, but I will make a couple of observations on the timeframe.

First, scripts have been going through. They’ve been going through either very rapidly because there’s been no restrictions on the product from that payer or they’ve had some prior off which require us getting some additional information from the payer and then resubmitting that and getting the prior off approved. And then, shortly, thereafter the drug will be dispensed. So that’s really the way it’s been going. It’s been very clean, just with mixed timing depending on the patient’s insurance coverage and financial position.

We anticipate that once the formulary decisions have been made that it will be -- for Medicare the drug will be covered under the Standard Benefit Design and for commercial, the drug will be covered it just depends on what tier it’s on and what level of restrictions it has, but we are optimistic that the coverage will be pretty good and if the first 90 days is reflective of the later stage, then like 80% or so of commercial scripts will be $100 co-pay or less.

Ying Huang – Barclays Capital

And then you touched upon prior off. So based on data you have seen so far, what is the percentage of patients that would have to go through the prior off process?

Pat Andrews

So in the last few months, it’s been about half, a half.

Ying Huang – Barclays Capital

And then, can you tell us a bit about your Patient Assistance Program here and also what is the percentage of Jakafi patients that are using your program?

Pat Andrews

Sure. So the Patient Assistance Program, we believe is very robust. We benchmarked it against other programs from other companies and chose criteria that we thought made it likely that if you would prescribed the drug, you would be able to get the drug either through free drug or co-pay assistance from Incyte.

And, of course, we’re only allowed to help commercial patients, Medicare patients, industry is not allowed to help directly, they have to be sent -- they have to find other means of which the most common is a foundation or multiple foundations, which are set up specifically to help Medicare patients make it through, the donut hole or other financial barriers that they may have to treatment. And those are independent organizations from us, so while we have contributed funds to them, I’m not conversant really with how that is going except my understanding is it is going well.

On the commercial side, we projected that there will be a wide range of use of our Patient Assistance Program. It might average about $2,000 per commercial patient but in many cases it would be very light, $25, $50 additional support.

In other cases, it might be a couple thousand dollars support and it really all depends whether that patient was covered under a flat fee or co-insurance. And that is what we’ve seen, and I would say usage so far has been maybe slightly lighter than anticipated, but I don’t really read anything into that right at the moment.

Ying Huang – Barclays Capital

Okay. What is the split between academic versus community settings for the Jakafi scripts that’s been written so far?

Pat Andrews

So we expect longer term that about 75% to 80% of the script will come from community hematologists, oncologists and the rest will come from academic. And we’re running slightly below that at the moment but not inconsistent with that.

And the reason, I believe we’re running below is, because we’re more likely to have academic institutions participate in our Phase III program, so they would have already been familiar with the drug. And while the majority of all patients who are in the community, the small number of academic size which do specialize in myelofibrosis and myeloproliferative neoplasms, do have more patients per doc. So they may have put on multiple patients right at the beginning because they were very comfortable with it.

While in the community, we have to work to get that physician comfortable with the drug and the patient, and the treatment paradigm, and side effects, and how you manage them, and seeing the response and getting excited by the response the patient has on the drug. So it’s just a slightly longer process and most community oncs who have prescribed Jakafi for a patient have prescribed it only for one patient at this time.

Ying Huang – Barclays Capital

And, I guess, we can assume that maybe in the academic settings, the doctors are probably not using this trial and error approach too much. They feel more comfortable with the profiles for Jakafi because they participated in the Phase III trials, is that fair?

Pat Andrews

Yeah. So they’ve had longer exposure to the drug and are more comfortable with having used it in the appropriate patients, yeah.

Ying Huang – Barclays Capital

And then, since you brought up the point that maybe some of the doctors in the community setting are trying to experiment with Jakafi for one or two patients? But how long do you think roughly do they need before they adopt Jakafi therapy in more patients?

Pat Andrews

It’s not as, well, it’s a twofold. If one is how much time they need getting comfortable with it and even though, after they prescribe it to the first patient, he comes back in two to four weeks, they’re very likely to see an improvement in the patient at that time, that’s probably not sufficient to give them complete confidence. They want to see that patient on drug for a number of months.

So that’s one factor, but then the second is, how often do the myelofibrosis patients come into see the doctor in the first place and maybe the doctor only has three myelofibrosis patients because its widely dispersed in the community. So they put one on, maybe the second one comes in at a time that the doctor hasn’t yet gained complete comfort with the first patient in it. So he doesn’t put him on then.

We can see that while we expect the process to be very sustained once it starts, it may take a while for that physician to getting that comfort level with the drug in the appropriate patient. So that’s why we’re projecting that we don’t -- we have a gradual and a sustained launch. We don’t really peak until two to three years out, which is different from a lot of oncology products where you would have a very rapid uptake and then flatten much more quickly.

Ying Huang – Barclays Capital

So are you seeing actually physicians reaching out proactively to patients because they know that there is new drug for myelofibrosis or they’re just waiting for the patient to come out for regular follow-up?

Pat Andrews

I would say in those cases they are waiting for the patient to come for regular follow-up. You have to keep in mind that community oncologists have very, very busy practices. They may see 20 patients a day. They often work extremely long hours and they take incredibly good care of those patients while they’re in the facility.

But they’re probably not proactively reaching out to their MF patients and saying come in now. And if, so I mean, I’m sure in some cases they did do that. They would have done it with patients who really were very severely ill and physicians thought there is not a lot of time here. I need to bring them in.

Ying Huang – Barclays Capital

Okay. I know it’s in a still early stage for the drug launch. But what kind of patients are doctors putting onto the therapy of Jakafi now? Is it mostly high-risk patients or is it actually good mix between intermediate risk and high risk?

Pat Andrews

So we do -- we have launched trackers which follow about which every two weeks or every month we’re moving into, ask about 50 hematologists, oncologists who’d be our primary focus, have they put a patient on Jakafi and if so what type of patient, what characteristics.

So we think we have a fairly good read on this and I will say more patients are in the intermediate to high risk category at the moment than any other group. That does make sense that was the group studied in our Phase III.

At the same time, we have broader label than that, after careful review, the FDA did give us an intermediate and high risk -- or high risk labels, so it’s more expansive. And I believe that we will get more of those earlier stage patients overtime again once the doctor is familiar with the drug and the appropriate patient, and the response the patient has to the drug.

Ying Huang – Barclays Capital

Based on feedbacks from the committee and from all the other physicians, what have the doctors been most impressed with profiles checked by experienced. And then on the other hand, what are the main parts of that for them to get comfortable with the overall profile of the drug?

Pat Andrews

I would say they have been most impressed by how quickly it works and the dramatic improvement patients who for years have been slowly worsening on their disease, particularly their spleen has been growing, sometimes it can grow very rapidly. Their symptoms have been getting worse, there is a myriad of symptoms associated with disease and while each on its own may not seem like that much, when you have a constellation of them, it really becomes an overwhelming burden on the patient.

So for example, the ones that are studied in our label include early satiety. You don’t eat as much, you’re feeling full bone pain or muscle pain, abdominal discomfort, pain in the left ribs, itching and night sweat. These can be really very constraining for the patient and frequently they overtime become less and less active.

They are more likely to sit down than they’re to walk. They have problems bending over because you have something which is spleen, which is normally the size of a fist, now consistently the size of a football sticking out below your left rib cage. And that constrains your ability to take a deep breath, your ability to bend over, so there is just lots of ramification of this disease which are really very burdensome.

So when a doctor has been treating a patient for let’s say a couple of years and he sees him once a month, once every three months and just sees them getting worse and then he then puts him on Jakafi, he asks them to come back in two to four weeks. And when they come back, he says how are you doing, and that patient says, I’m feeling better, I think my spleen used to measure four fingers and now it measures two fingers and I slept through the night last night and I’m eating a little bit more, and I took a walk with my grand child, which I haven’t done in about two years.

When a physician hears something like that, it really resonates with them and usually there is that type of, if there is potential for that type of response within that two to four week period, because the symptoms do ameliorate very, very quickly.

The spleen also shrinks pretty quickly, but it does take longer time for the full effect of that versus close to the full effect on the symptoms can be found within that first month. So that’s I would say speed and then the dramatic improvement that these patients have are clearly what impresses the physicians the most.

And as a physician it’s just really, really rewarding to be able to help someone who you’ve not been able to help and to see that level of difference. So I think emotionally, the emotional benefit there is really very high.

And things that are more challenging are, they’re oncologist they’re often used to treating patients who are terminally ill in a relatively short period of time and they have a dramatic sense of urgency for those types of diseases.

This is not that type of disease. Both the benefit and the curse of myelofibrosis is you can live a relatively long time with the disease. But its progressive and you feel worse, and it is terminal at just maybe six years, eight years, 10 years, two years, some number like that, but it’s not six months generally.

And so, I think the urgency to treat, there is more caution, I want to see how it works, I want to see what usage is and practice versus in the clinical trial. I’d like myself to get some comfort with it and those types of things, which I believe are all overcome through time and experience with the drug.

Ying Huang – Barclays Capital

Okay. So you have talked quite a bit, let’s switch gears to David here maybe. As CFO, when do you think its appropriate time for you to provide guidance to the street?

David Hastings

Yeah. A good question. So we want to be very prudent about that. We want to make sure that we have a real deep understanding of all the underlying trends and metrics around the launch that will take some time.

And now that we have launched the product, I do get a feel for some of the variability in the data and once that smoothes out, and we’re confident that the guidance we give is attainable and understandable that’s when we’ll do it. It’s very difficult though to put a timeframe on that right now, yeah.

Ying Huang – Barclays Capital

Okay. That’s fair. And then, you do have an outstanding convertible debt out there, but the company is generating cash flow now. Do you think, you might think about buying back some of that or do you think you might raise more capital to repay that debt?

David Hastings

So to covert, so I’ll describe the covert it, it’s convertible $8.78 a share, so well in the money. It’s not due until 2015. It’s not callable. So we can’t call the notes early. There are ways and strategies that company could utilize to reduce debt.

Frankly, it’s not the highest priority right now, I mean, obviously, the capital structure of the company is important to us. We’re, really, right now focused on the launch and executing that well and we believe, if we do that the balance sheet will take care of itself.

Ying Huang – Barclays Capital

And in terms of profitability, what kind of near-term I think you tell about?

David Hastings

Given on that I’m not going to give in revenue guidance, I’m certainly not going to give profitability guidance, that’s a third role, by our ex-CFO. What I will say obviously it’s important is why we are in business. But I think for biotech emerging growth companies like us, when we reach profitability, we want to reach at a time where it’s sustainable and growable at a multiple that’s interesting to investors.

So there will be a time and a place for that obviously. There are a lot of variables that go into it. Incyte has a very deep and rich pipeline. We’re going to continue to fund that. We think it’s a very good ROI for the company and we’ll balance that versus the cash flows that Jakafi provides.

Ying Huang – Barclays Capital

Okay. So now I have another question for Pat. We all know that last week there was a article published in The New England Journal magazine describing the COMFORT trial and also the survival data from that trial. So what is the commercial implication for that survival data? Is there anything you can do to distribute that data in the physician community here?

Pat Andrews

Sure, of course. So that data was part of our Phase III study and part of the manuscript was published in The New England Journal. Actually both the COMFORT-I study which was the U.S. study and the COMFORT-II study which was the European one were published in the same issue of the New England Journal of Medicine.

So that’s a great data and because they are our pivotal studies, we are able to use them promotionally. They are packaged in a reprint carrier. Now, they do have some information in them, which is broader than a label that we have, including on overall survival.

So we would not be focusing in on that or even be addressing that but it is in the materials and I believe that the combination of the thoroughness of the articles and the quality of what’s in there will be very impressive to physicians.

But we’ve only just started to distribute them because we’ve only approved two weeks this Wednesday, I believe and it does take a minute to get the reprints and everything printed and out there. But I believe it will be very positive because it’s very compelling information.

Ying Huang – Barclays Capital

Okay. And then, let’s go back to talk about the launch itself. Any surprises at all, I mean, compared to what your expectation was before the launch?

Pat Andrews

So unlike a lot of small companies who focus in so much in just trying to get their drugs through development processes, Incyte actually early on did focus on what the commercial opportunity would be.

So, for example, I was hired three years before the drug was approved and even though we had some difficult financial times during that, we actually always put the money that we needed to into market research to understand what this market looked like and we did a lot of that.

So I thought we had an extremely good feel on who are the patients, where are they, who is treating them, how do those physicians view these patients, what’s the insurance coverage likely to be, what restrictions will we have, what’s the good price for the product and all the other things that you really want to understand before you launch a product.

And so we did all that and so I can say that all the things that we found through our research has pretty much come through so far in the launch. So really there haven’t been surprises, it’s been pretty much as we anticipated it would be.

Ying Huang – Barclays Capital

I guess lot of an effort pays that.

Pat Andrews

Absolutely.

Ying Huang – Barclays Capital

Obviously, you also have the collaboration with Eli Lilly on the oral JAK in rheumatoid arthritis. And even though we haven’t seen the Phase IIb data yet, but it sounds like Lilly has already committed to a Phase III trial here. So what kind of obligation do you have for -- because you’re already asking for co-development and co-promotions, what kind of obligation do you have for Phase III here?

David Hastings

They haven’t announced anything about Phase III, but we’re hopeful they would initiate this year. And so the opt didn’t allows us to step up the royalty rates. The royalties began at 20%, tiered up to the high 20s. So it’s a very favorable economic situation for us and in exchange for that, we have to fund 30% of the development costs going forward. So we started with Phase IIb’s development costs and will fund 30% of the Phase III costs.

Ying Huang – Barclays Capital

Have you disclosed about the milestones for Phase III initiatives?

David Hastings

Yeah. Unfortunately we can’t disclose the amount, but obviously that’s an important juncture for the program. It represented an important milestone and it’s a material task.

Ying Huang – Barclays Capital

And strategically speaking, how do you think about the oral JAK program in RA, because we just learned that Abbott spent of $150 million for Phase I asset from Galapagos. So it sounds like people are excited about the JAK -- oral JAK in RA and what do you think in the near future that could do for Incyte if this program moves along?

Pat Andrews

So, I think, it is a great opportunity. Lilly is very eager to advance this compound even though they haven’t got committed yet to the Phase III, we’re optimistic from everything that we seen. When we were initially looking to partner this program now, two years ago, we did talk to a number of players and in fact, I think we’ve said publicly we had four very interested parties.

And so, in that opportunity, they all pretty much said that they would expect oral therapies to be preferred over the anti-TNF and I believe that that is still the case. Consequently, this is a huge market, because we know the anti-TNF themselves are, I don’t know…

David Hastings

$15 billion.

Pat Andrews

Okay. Continuing to grow, even if it was positioned after the anti-TNF, there is a fair amount of switching through therapies. People often don’t stay on their drug longer than a year or two. So even that it’s still an enormous market and even with other competitors in there, we believe that Pfizer’s tofacitinib will be approved and will be a competitor in there. We would still seem very well positioned for such a large market when we have very favorable economic conditions associated with that and we don’t have outside of the development other costs associated with it.

David Hastings

Yeah. I would just add again, but the royalties where they are, it’s a game changer for us if that gets approved.

Ying Huang – Barclays Capital

Just in a quick nutshell, how would you say that differentiates your oral JAK compared to the Pfizer’s tofacitinib and also Rigel and AstraZeneca’s Syk compound and Vertex also have a JAK2 there.

Pat Andrews

Right. So our different JAKs and the balance between which ones your product is, we do believe plays a role in the ultimate success of the product. And so, ours is very much a JAK1, JAK2, Pfizer’s is probably more of pan-JAK, Vertex is more of a JAK3 and Rigel’s is actually a Syk compound, so sort of different.

And then, within that, so there are those differences. We sort of view the Pfizer compound as being a good compound. We have been tracking how it does and what it reports its results and the plans Pfizer makes and I’m sure we’ll be watching their ad com very intently. So there are things that we can learn from that.

I mean, we do believe that as data emerges, so they studied in lot of patients and our product has been in a much smaller number that we see things even now, which could easily be differentiators down the road and the data is just not mature enough to know how that turn out.

The most obvious, but not probably certainly the biggest is, we are once-a-day product versus Pfizer compound is twice-a-day product. It looks like they have a certain number of drug-to-drug interactions, which requires you to come off some therapies before you could go on that therapy. We have not seen those.

And there is some other concerns possibly with LFTs or other things that we haven’t necessarily seen while they might have. And there is some other, which again throughout the course of the Phase III and whatever the label ultimately turns out today. We would see as being differentiators and there is still the possibility that efficacy is a differentiator, as well as safety, we just don’t know that yet because our data has been really quite consistent with theirs.

Ying Huang – Barclays Capital

Okay. Great. Our time is up. I really want to thank you two of you.

David Hastings

Thank you, Ying.

Pat Andrews

Thanks. Thank you very much, Ying.

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Source: Incyte's Management Present at Barclays Capital 2012 Global Healthcare Conference (Transcript)

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