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Incyte Corp. (NASDAQ:INCY)

Q1 2012 Earnings Call

April 26, 2012 08:30 am ET

Executives

Paul Friedman, M.D. – President and Chief Executive Officer

Patricia Andrews – Executive Vice President and Chief Commercial Officer

David Hastings – Executive Vice President, Chief Financial Officer

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

Pamela Murphy – Vice President, Investor Relations and Corporate Communications

Analysts

Rachel McMinn – Bank of America/Merrill Lynch

Salveen Richter – Canaccord Genuity

Eric Schmidt, PhD – Cowen & Co.

Sapna Srivastava – Goldman Sachs

Thomas Wei – Jefferies & Co

Liisa Bayko – JMP Securities

Cory Kasimov – JP Morgan Chase

David Friedman, MD – Morgan Stanley

Matt Roden, PhD – UBS

Brian Abrahams, MD – Wells Fargo Securities

Ying Wang – Barclays Capital

Elliott Savis [ph] – Savis Research [ph]

Operator

Greetings, ladies and gentlemen, and welcome to the Incyte Corporation First Quarter 2012 Financial Results Conference Call. A question and answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

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

Pamela Murphy

Good morning and welcome. With me today are Paul Friedman, Incyte’s President and Chief Executive Officer; Pat Andrews, Executive Vice President and Chief Commercial Officer; Dave Hastings, Executive Vice President, Chief Financial Officer; and Rich Levy, Executive Vice President, Chief Drug Development and Medical Officer.

Paul will begin with a brief overview of the quarter, Pat will update you on the product launch of Jakafi, and Dave will describe our first quarter 2012 financial results. Prior to opening up the call for Q&A, Paul will close with a summary of some of our other programs.

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 expectations for the launch and commercialization of Jakafi as well as our development plans in other indications.

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-K for the year ended December 31, 2011, and from time to time in our SEC documents. Paul?

Paul Friedman, M.D.

Good morning, everyone. The launch of Jakafi for patients with intermediate- or high-risk myelofibrosis is going well. During the first quarter we recognized $19.3 million in net sales of Jakafi and we shipped 25.1 to our specialty pharmacies. Jakafi is an important advance for patients who suffer from this progressive and life threatening disease.

Given the compelling benefits it provides in terms of spleen reduction and symptom improvement, the encouraging survival data recently published in the New England Journal and the fact that this is the first FDA approved treatment for patients with MF, it’s not surprising to me that interest in Jakafi is high.

Additionally, last week our partner Novartis received recommendation by the Committee for Medicinal Products for Human Use, the CHMP, for approval of ruxolitinib, the treatment of disease related splenomegaly or symptoms in adult patients with primary post-polycythemia vera or post-essential thrombocythemia myelofibrosis. We look forward to seeing patients and physicians outside the US have access to the drug.

The positive CHMP opinion means that Incyte has earned a $40 million payment from Novartis and will earn a second payment of $60 million once Novartis receives reimbursement and pricing approval in specific EU countries. In the EU, the European Commission generally follows the recommendations of the CHMP and the decision will be applicable to all 27 EU member states.

In addition to the ongoing extensions of our Phase II and Phase III trials in MF, Incyte and Novartis are conducting a global pivotal Phase III trial called RESPONSE in patients with advance polycythemia vera and we continue to expect the RESPONSE study to be completed in 2013 with our goal being to obtain FDA approval of the SNDA in 2014.

There are also a number of ongoing investigator-sponsored trials in leukemias and in lymphoma, and then there is the Incyte-sponsored trial in pancreatic cancer with that expected from that trial in 2013.

So for now, I’ll turn the call over to Pat and then to Dave.

Patricia Andrews

As Paul said, the launch is going well. Our launch tracking surveys, as well as feedback from our field force, suggest that physicians who have tried Jakafi are impressed by how quickly the product works and how dramatically it improves the debilitating symptoms and splenomegaly that affects so many patients with MF.

In the near- to mid-term, we remain confident that this positive initial experience will lead to a steady increase in the use of Jakafi in patients with severe or moderate symptoms and/or splenomegaly.

Longer term, as we build awareness of the benefits of Jakafi and the burdensome progressive and life-threatening nature of MF, we expect that use of the product will gradually expand to include intermediate or high-risk MF patients with any degree of symptoms and/or splenomegaly.

While it’s still early on in the product launch, I’d like to describe a couple of factors that we think drove our first quarter sales and why we continue to believe that our launch will build gradually. First, since we’ve launched Jakafi in November, we’ve conducted a series of market research surveys with hematologist-oncologists that are remarkably consistent with positive feedback from the field, as well as our own prelaunch market research.

Approximately two weeks after we launched Jakafi, awareness of the product jumped from 20% to 80%, and in our most recent survey conducted at the end of March, awareness of Jakafi had increased to 87%. We’re further encouraged by the fact that well over 80% of physicians who have yet to prescribe Jakafi, from the survey, say that they expect to use the product in the future.

Our market research suggests that most patients receiving Jakafi thus far tend to have severe symptoms and larger spleens. This is consistent with our original expectations. In other words, the first patients on Jakafi tended to be the more ill patients in whom there was a clear belief that the benefit had the potential to outweigh the risks. It will take longer to move beyond these types of patients to those with earlier stage disease, and this will likely begin to occur as physicians become more comfortable with the product.

As of March 30th, approximately 1,000 physicians had prescribed Jakafi. Our marketing and sales efforts are focused on reaching about 6,500 hematologist-oncologists. Thus far, most physicians have written a prescription for Jakafi for one patient, however, there is a growing number who have written a prescription for two or three patients and a handful of physicians, including some key opinion leaders, many of whom participate in the Phase III trial, who have written a prescription for Jakafi for five or more patients.

About 85% of our prescribers are from the community and they have generated 70% to 75% of the volume since launch. This is consistent with our market research that says most MF patients are treated in the community setting.

We believe most community physicians are less familiar with myelofibrosis as, on average, they have just a few such patients. Many of these physicians typically want more information, more education and more time prior to prescribing a new product like Jakafi. Therefore, we will continue to focus on systematically reaching more of the community-based physicians.

Over time, we believe that most community hematologist-oncologists are likely to recognize the significance of our Phase III trial results, which clearly demonstrated the value of treatment with Jakafi as compared to placebo or best available therapy.

We also believe many of these physicians will appreciate the encouraging data on overall survival recently published in the New England Journal of Medicine and presented at ASH. But this will take time, which is why we believe that going forward, our growth rates for new prescribers and new patients may be more gradual than what we saw in the first quarter.

Regarding our experience with payers, because payers take 90 to 180 days to make formulary decisions, most scripts in the first quarter were still being processed as exceptions. The exception process is not necessarily indicative of the level of restrictions or patient out of pocket costs once the formulary decision is made. With that caveat, more than 40% of the time in the first quarter, Jakafi scripts were processed without restrictions.

The scripts that had prior authorizations were most likely ones that required a diagnosis of myelofibrosis or were limited in quantity, such as a maximum 30-day supply at any one time, and nearly all of these prior authorizations were approved. We should have a better sense of formulary coverage and restrictions later this year.

As expected, the price has not been a significant issue with most payers. About 55% of patients have been commercial pay. This is higher than the 40% to 45% that we originally estimated, though the percentage has been trending slightly downward and may continue to do so. About 80% of commercial patients have had copays of less than $100 a month.

About 30% of patients have been covered by Medicare Part D. This is lower than the 40% we expected, but as this has begun to trend slightly upward, the percentage may continue to increase over time. Nearly all Medicare Part D patients have been covered under the standard benefit design and many have sought and been able to access funds through charitable foundations.

10% to 15% of patients have received free drug. This is consistent with our original estimates. The remaining patients have Medicaid or receive care through other government programs such as the VA, 340Bs and TRICARE.

To summarize, the first full quarter of the launch has gone well. Most of our assumptions regarding initial patients use, physician mix, payer acceptance and patient access are close to what we anticipated. We’re off to a good start, and over the next few years we’re confident that the use of Jakafi has the potential to fundamentally change the way myelofibrosis is treated by providing significant benefits to patients with any degree of symptoms and/or splenomegaly.

With that, I’ll turn the call over to Dave.

David Hastings

Thanks, Pat and good morning, everybody. I’m going to start my overview this morning by discussing our cash position. We ended the quarter with $236 million in cash and investments, excluding $19 million in restricted cash held in escrow for interest payments through October, 2012 on our 4.75% convertible senior notes.

Our ending Q1 cash also excludes the $40 million milestone earned from Novartis announced last week based on the recommendation by CHMP for EU approval of ruxolitinib. This milestone will be recognized as revenue and paid in the second quarter of 2012. We expect to earn an additional $60 million when Novartis receives pricing and reimbursement approval from a subset of major European countries. We expect that to occur sometime in early 2013.

Now moving to product revenue. It’s important to note that we are still using the sell-through method for revenue recognition, which means we defer revenue until the specialty pharmacy ships the product to the patient. We will transition to the more customary policy of recognizing revenue when our product is received by the specialty pharmacies once we have an established track record for product returns. While we do not expect product returns to be material, this interim accounting treatment is standard practice for many new products.

As Paul mentioned, for the quarter ended March 31st, we shipped 25.1 million of product to our specialty pharmacies and recorded gross revenue of $21.2 million. Our gross to net adjustment for product revenue recognized for the first quarter was approximately $1.9 million, resulting in net product revenue of $19.3 million. 31st [ph] was $6.5 million and our gross to net adjustment on our deferred revenue was $500,000, resulting in net deferred revenue of $6 million.

Our gross to net adjustment includes the following: fees to our specialty pharmacies, rebates to governmental payers, our share of the donut hole for Medicare Part D patients, copay assistance to eligible privately insured patients, and any product returns.

It’s too early in the launch to provide guidance on product revenue and we will do so once we have a longer track record and greater clarity of the underlying trends related to Jakafi sale. It is also too early in the launch to provide guidance regarding the gross to net adjustment on a go-forward basis.

In terms of our non-product revenue, we are increasing guidance from $67 million to $107 million for 2012 to include the $40 million milestone earned from Novartis. Our cost of goods sold was immaterial as our starting finished goods inventory was previously expensed as R&D prior to FDA approval. And in terms of operating expenses, both R&D and SG&A were within our expectations.

So with $236 million in cash, the $40 million milestone we just earned from Novartis, the potential for additional significant milestones, and a product launch that’s going well, I’m confident we’re in a strong financial position.

With that, I’ll turn the call back to Paul.

Paul Friedman, M.D.

Okay, thanks, Dave. So before going to Q&A, I’m going to just briefly take you through the status for the rest of our pipeline. For Incyte 28050, the JAK1 and JAK 2 inhibitor partnered with Lilly, the six month Phase IIb trial in rheumatoid arthritis patients is complete and all eligible patients are now in the open label extension phase.

The three-month data will be presented at ULAR in a late break or oral session, or the late break or oral session, and we expect the six-month data to be presented at ACR. Plans for the Phase III program are well underway and we would expect that Phase III program to start later this year.

Lilly is also conducting a double-blind placebo controlled dose ranging study to explore the efficacy and safety of 050 in 240 adults with moderate to severe psoriasis, and while it’s obviously dependent on the timing of patient enrollment, we’re expecting to see data for the primary endpoint in the first half of next year.

Our earlier stage oncology programs for C-MET and IDO are ongoing. For the C-MET inhibitor, we’re nearing completion of the initial Phase I trial in patients with solid tumors, and in parallel to that, Novartis has now initiated a study in patients with C-MET dependent advanced solid tumors. For IDO, we plan on beginning our Phase II trial in patients with melanoma mid-year, followed by a trial in patients with ovarian cancer in the second half of the year.

We have other ongoing proprietary clinical development programs in oncology and inflammation. I’ve mentioned them before, but I haven’t described them for competitive reasons. At the appropriate time, I look forward and plan to describe these programs to you.

Operator, could we now please open the call for Q&A?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now be conducting the question and answer session. (Operator instructions) Our first question is coming from the line of Rachel McMinn with Bank of America/Merrill Lynch. Please state your question.

Rachel McMinn – Bank of America/Merrill Lynch

Good morning and congratulations. Fantastic start to the Jakafi launch. A couple of questions.

One is just, Pat, you made a comment that the growth rate in subsequent quarters should be slower, so I just wanted to dig in to that because on the one hand, you’re telling us that the large volume of prescriptions is coming from the community. You still have a huge runway of prescribers to be adding and physicians are starting to go from one to two to three to four prescriptions, so I just want to understand how to interpret that comment.

And then separately, Paul, I wanted to ask you about the Lilly partnered RA program and try to understand how important the tofacitinib panel is to your Phase III planning. Thanks very much.

Patricia Andrews

Hi, Rachel. Good morning. So, what I meant by saying that growth in the future will be gradual relates to the patient population that we’ve been able to reach, so I do think there’s a large opportunity in total out there, but it’s the first patients we’ve reached have been those with more severely ill patients with symptoms, more burdensome symptoms, larger splenomegaly, and those probably would come faster because it’s more obvious that they should get the drug and they should get the drug right away.

But over time, we will, of course, be moving into the patient population, which ultimately is larger, which is patients who don’t have as advanced disease. They may have any degree of symptoms and splenomegaly and it will take longer to make inroads into that patient population, so I do expect continued growth, but I don’t necessarily expect the growth in absolute numbers to be as large for new prescribers or new patients as it was in the first quarter.

Paul Friedman, M.D.

Rachel, can you just repeat the Lilly question, please?

Rachel McMinn – Bank of America/Merrill Lynch

Yes, I’m just curious -- there’s an upcoming tofacitinib panel on May 9th where, obviously, that product’s going to be reviewed and I’m just wondering if there’s any information or how we should think about that panel impacting your Phase III planning, if at all.

Paul Friedman, M.D.

So, obviously, that panel is quite important and we’re definitely going to be tuned in, and Lilly will be, too, as to what transpires there. There are common features between tofacitinib and 28050, but there are also some distinguishing features that we believe, in general, favor 28050, but if there are class issues that come up that are either good or bad, depending on how the committee discusses them and ultimately votes on them, I’m certain that Lilly, with our input, will use that information to adjust what is now a very mature Phase III plan.

But we are cautiously optimistic that that advisory committee should go reasonably well. The data looked pretty good. We just never know what twists and turns could come out of it that could be useful to you in finalizing your Phase III development plan.

Rachel McMinn – Bank of America/Merrill Lynch

Okay, thanks very much.

Operator

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

Eric Schmidt, PhD – Cowen & Co.

Congratulations, as well, on a great start. Maybe for Pat, just wondering if you have any kind of rough guesstimate of the proportion of the severe and moderate patient population that you have penetrated or any kind of estimate of how many more quarters it might take to get to a more mature point in time with that phase of the launch.

And then a question for perhaps Dave, you’ve mentioned in the past the channel inventory, I think at the end of Q4, was about two or three weeks’ worth of sales. Is that still the case at the end of Q1?

Patricia Andrews

Good morning, Eric. I don’t have an estimate for you on how deeply into the patient population we’ve penetrated, but I can tell you in our launch tracking surveys, approximately, which we interviewed about 50 hematologist-oncologists.

We’ve been doing it every two weeks or every month since we got approval, that for those -- and they all had to have treated at least one patient with Jakafi, and that suggests that about 80% of their use was in patients with moderate or severe symptoms and are splenomegaly, and about 90% were intermediate, too, or high-risk, so you can see that the usage is definitely, at the moment, in that more severe patient population, and we still have a significant inroads to make there, as well, as over the longer term in a patient population less burdened by the disease but still with splenomegaly and/or symptoms.

Paul Friedman, M.D.

And, Eric, yes, we’re estimating the specialty pharmacies hold about two to three weeks of inventory than the Q1.

Eric Schmidt, PhD – Cowen & Co.

Okay, and if I can squeak in one more, in the past, I think you’ve guided to essentially no cost of goods in 2012 given the better ramp here that we’re seeing. Is that still the case?

Paul Friedman, M.D.

Yes.

Eric Schmidt, PhD – Cowen & Co.

Thank you.

Operator

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

Thomas Wei – Jefferies & Co.

Thanks. Just a follow up, again, on this whole point about the commentary about future growth. I guess I’m just trying to make sure that I completely understand that the slower growth rate that you’re talking about going forward, it does not sound like that’s a trend that you have already seen, say toward the end of the first quarter or the early second quarter. That’s just something that you’re guessing is going to happen in some future quarter. Is that the right way to interpret that?

Patricia Andrews

That’s the right way to interpret it. I’m just -- I’m looking at the patient population that’s out there and our plan for how we reach them, and how physician prescribing behavior is much more likely to go to a more severely ill patient first and then they need to have experience with that.

This all takes a substantial amount of time to unroll, so that’s just how I’m looking going forward.

Thomas Wei – Jefferies & Co

Is it fair to say that, actually, if you look at the trajectory over the course of the quarter, maybe it’s actually the opposite of what the last question was that I was indicating, that towards the end of the first quarter even, whatever trends you’re seeing in the early second quarter, that things may actually be accelerating?

Patricia Andrews

Thomas, we’re not going be able to give more insight into what the quarter looks like. It’s too early at this stage of the launch. So what I can say is that the scripts and patient numbers were strong, as you gathered, and we attribute a lot of that to the use that came from key opinion leaders and from early adopters in the community, and all of them treating more severely ill patients, so that’s really just where we are right now.

Thomas Wei – Jefferies & Co

And maybe a question on this whole stability inventory stocking question, are you able to say whether or not you’re more towards the lower end of that range or the higher end of that range?

Paul Friedman, M.D.

Thomas, I think we’re right there. I mean, it’s a pretty small range, two to three weeks, and that’s looking like that’s going to be the range, and that’s what we expected going into the launch and nothing’s changed.

Thomas Wei – Jefferies & Co

So if you’re kind of right in the middle of that range, then the two to three weeks and the $6.5 million would actually suggest that the exiting run rate at the end of the quarter would be in the kind of low- to mid-30’s? Is that the right sort of math? Am I doing that correctly?

Paul Friedman, M.D.

Again, we don’t -- we’re not going to comment directly on that, Thomas. As Pat has said, the launch is going well and --

Thomas Wei – Jefferies & Co

Okay, and then maybe just one last thing. The high risk populations, you had originally said that it was 30%, I think, of all myelofibrosis patients, and if you’re still confident in the overall number of patients there, the first quarter doesn’t really represent very much penetration of that group of just the high risk patients. Is that fair?

Patricia Andrews

What we’ve always said, Thomas, is that physicians in practice look at their MF patients as mild, moderate and severe, and within that, each one is about a third of the population. If you’re actually looking at risk prognostic factors, there’s four gradations and it’s low, intermediate one, intermediate two, high risk, and of course, we’re indicated for intermediate and high risk.

Thomas Wei – Jefferies & Co

Thanks.

Operator

Our next question is coming from the line of Matt Roden with UBS. Please state your question.

Matt Roden, PhD – UBS

Great, thanks. First of all, congrats on the great execution of the launch here and thanks for taking my question. It looks like there’s obviously a lot of demand here in myelofibrosis, but is there any evidence of physician-driven spontaneous adoption in the other indications such as PV?

Patricia Andrews

As might be expected with a new product in the new -- that’s from a new class for patients mostly treated in the community, there’s not been much usage outside of myelofibrosis, and that would be expected and I think that that would continue for quite a while because just like they need to get comfortable with the patient population that they’re treating in myelofibrosis, it would take much, much, much longer for them to have comfort outside of that for a large number of physicians. Of course, there would always be some exceptions.

Matt Roden, PhD – UBS

Okay, great, thanks. And then just lastly, Pat, a question on coverage. You mentioned that most patients that you’re seeing have gained access to the drug, but of those who have not so far gained access, was there any common features in those patients that we should take into consideration as we think about maybe low -- are there any subsets that we should expect low expectations for?

Patricia Andrews

No, really, coverage has been very broad, very open and it’s not always been immediate because there have been prior auth and sometimes additional information needs to be provided, but it’s nearly always been ultimately successful and there wouldn’t be a characteristic that I could point out which has been --

I mean, the only time it’s not been successful, really, is when it’s not been for myelofibrosis because the prior authorizations usually do require that and that’s one that they’re not usually going to go around.

Matt Roden, PhD – UBS

Great. Thanks very much and congratulations.

Operator

Our next question is coming from the line of Liisa Bayko with JMP Securities. Please state your question.

Liisa Bayko – JMP Securities

Hi, and I’d also like to get in the queue and say congratulations on the great quarter. I just wanted to maybe get a sense of your plans for ASCO, what kind of data you’ll be discussing there and also ULAR, your presence there with the RA data.

Richard Levy

This is Rich. There’s a little bit of data at ASCO that is brand new. A lot of it is looking back again at the COMFORT studies and providing more detailed analyses in certain areas.

The one study that we’re going to be presenting that we’ve not talked about before is one in patients who start with counts below 100,000, or essentially between 50,000 and 100,000, and we’ll be presenting data where those patients start at five milligrams twice daily and worked their way up.

And just a general sense of that, most patients are able to work their way up to doses that are effectively treating both cytokine and spleen-related symptoms and we’ll provide more data on that, and I believe that the actual titles of the ASCO presentations were posted maybe this morning or last night.

In terms of the ULAR, the only presentation is the Lilly presentation on their Phase IIb study with R28050. That’s three-month data. We expect the six-month data to be presented at ACR, and I think you’ve heard from Lilly, who tends to be very quiet, that they’re talking now in their call, I guess yesterday or the day before, they’re talking about the drug and their expectations to go into Phase III, so you can take from that that the date looked good.

Paul Friedman, M.D.

I would just reiterate that last point. I think the data looked very good and people will be highly impressed with how clean the compound is, how low the dose is and how eye-popping the efficacy data is.

Liisa Bayko – JMP Securities

Okay, wow. Looking forward to that. Will you be hosting any sort of analyst/investor event there?

Paul Friedman, M.D.

No.

Patricia Andrews

Not at ULAR, probably at ACR.

Liisa Bayko – JMP Securities

Okay, great, and then just a final question on the European label. I noted they sort of indicated that it was for usage in people who are displaying signs or symptoms along with splenomegaly. Can you give us a sense of how restrictive you think that will be and in what percentage of the patients with myelofibrosis actually have either signs, symptoms or splenomegaly? Thank you.

Paul Friedman, M.D.

I think it’s actually, at the end of the day, at least as broad as what we have. It’s anyone. It could be -- they could be viewed as low risk, but if they had spleen or symptoms, they would be eligible under that label to be treated. There’s no restriction with respect to platelets there, either, so I would say it’s -- the indication is pretty broad.

Richard Levy

Yes, remember that -- I don’t know if we talked about this before, but low-risk patients, for example, 50% of them have significant splenomegaly, and a lot of them have symptoms as well. They don’t have the so-called constitutional symptoms, the fever, night sweats and weight loss, but they can have many of the other symptoms, pruritus as well as the spleen-related symptoms, so I think it is a broad label for them.

Liisa A. Bayko – JMP Securities, LLC

Excellent, and congratulations on all the accomplishments this quarter.

Operator

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

Salveen Richter – Canaccord Genuity

Thanks for taking my questions and congrats on a good quarter. I’m just wondering, Pat, if you have any expectations for the period of time that they key targeted physicians who have not yet prescribed the drug could come online?

And then I think you’ve previously mentioned that about 15% to 20% of MF patients are misdiagnosed or undiagnosed. Are you seeing any of these patients get treatment?

Patricia Andrews

Good morning, Salveen. I think physicians who haven’t prescribed, in the surveys, they said within the next six months or when they have a next MF patient come in, so that’s why I do believe that will be gradual but steady over many quarters to come just because of how the patients come in and how the physicians get comfortable with the treating -- treatment aspects of it.

And the second question was?

Salveen Richter – Canaccord Genuity

Just about the 15% to 20% or more of patients that are misdiagnosed or undiagnosed.

Patricia Andrews

Right, so I wouldn’t have any information on that. What comes in to us is they were diagnosed with MF, and therefore, they’re going on our drug. If they had previously been MDS or something else, I wouldn’t know that.

Salveen Richter – Canaccord Genuity

And then if I could just ask another, where do you stand in regards to deciding on the registration study and ET with Jakafi?

Paul Friedman, M.D.

Rich, do you want to comment on that?

Richard Levy

Yes. We have our thoughts kind of together on this and the next step is putting together a package to talk to FDA and see whether or not our preliminary approach is one that they are going to like, and if that’s the case, we’d probably start sometime in early 2013.

Salveen Richter – Canaccord Genuity

Great, thank you.

Operator

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

Cory Kasimov – JP Morgan Chase

Hi. Good morning, guys, and thank you for taking the question. I have two of them for you that I have left. First, I realize the launch is more or less matching your internal expectations based on your market research at this point, but is there anything in the early commercial trends or the physician feedback that you have been surprised by?

And then secondly, I’m just wondering if there’s anything you can say about early patient dropouts or maybe the general tolerability of the drug as you’re getting kind of in the real world?

Patricia Andrews

Sure. Good morning, Cory. No, there’s really been no -- nothing that we hadn’t anticipated because we had done, really, an extensive amount of market research, so I think that it’s very much meeting our expectations in how we thought things would happen.

Possibly initial uptake was a little bit faster than we thought, but that aside -- and then as far as early tolerability of the drug, which we know is very tolerable, but how is it in the real world, it would be too early for us to have significant insight into that.

The drug’s not been on the market that long and most patients would have done one or two months of therapy at most, but we have a high level of confidence based on the results from the clinical trial that this is a well-tolerated drug.

Cory Kasimov – JP Morgan Chase

So there’s been nothing anecdotal about patients dropping off the drug earlier than you would have expected?

Patricia Andrews

No, there hasn’t been.

Cory Kasimov – JP Morgan Chase

Okay. Alright, thanks and great job with your early launch.

Operator

Our next question is coming from the line of Ying Wang with Barclays Capital. Please state your question.

Ying Wang – Barclays Capital

Thank you for taking my question, as well. It was very a [inaudible] quarter. My first question is your gross to net adjustment is about 9% this quarter and should we assume roughly the same range going forward?

And then second question is what’s the rationale behind using capecitabine as a pancreatic cancer trial [inaudible] because I know that drug was not approved as a treatment for pancreatic here?

David Hastings

I’ll take the growth net question, Ying. It’s a little too early in the launch to really guide as to what the ultimate steady state gross to net percentage will be. We need to see further trends in things like the breakdown of the type of patients and the like, so it will take at least a couple more quarters to really have a stable trend there, I think.

Richard Levy

With respect to your second question, we’re studying second line pancreatic cancer and there are not specific drugs that are approved for that, and it has been historically the case that you can study your drug in combination with unapproved drugs in such settings as long as you get that buy-in from the Food and Drug Administration or other regulators around the world.

This is a Phase II study. It has a small percentage of being a registration study if the results are very strong. We anticipate that more likely we would start a registration study based on these results and have detailed discussions with FDA once we have results of this in hand.

Ying Wang – Barclays Capital

But I assume you saw some sort of pre-clinical activity between the two drugs, between ruxolitinib and capecitabine?

Paul Friedman, M.D.

Yes, we have seen the graph-type models where we see activity, but one of the other rationales for using capecitabine is the lack of overlapping toxicity, especially with respect to bone marrow suppression, whereas the first line drug does have bone marrow suppressive activities and we just thought that was a wiser way to go and the xenograft model supported that.

Ying Wang – Barclays Capital

Got it. Congratulations again.

Operator

Our next question is coming from the line of David Friedman with Morgan Stanley. Please state your question.

David Friedman, MD – Morgan Stanley

Hi. This is Breanne calling in for Dave. Thanks for taking my question. I was wondering if you could provide any color on what you’re seeing in terms of Jakafi dose reductions.

Patricia Andrews

It’s really too early in the launch to have much insight into dose reductions. There’s been titration. It’s a product that does get titrated in the judgment of the physician. They might have started low and titrate up to go for more efficacy. They might have started maybe higher than they should have for the patient and they dose down, so it’s a drug that does have titration and it would be too early for us to be able to read into what those titrations mean at this point.

David Friedman, MD – Morgan Stanley

Great, thank you.

Operator

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

Brian Abrahams, MD – Wells Fargo Securities

Hi. This is Shin Kang calling in for Brian. Congratulations on a great quarter. Thinking about launch trajectory in Europe, I was wondering if the Early Access program in Europe gives a head start in pricing negotiation and maybe accelerate the uptake in Europe, and any additional information on country by country launch timeline would be very helpful. Thanks.

Patricia Andrews

I’m sorry, but we’re not able to give greater color for Novartis here. It’s their market and I wouldn’t want us to be speaking on their behalf.

Brian Abrahams, MD – Wells Fargo Securities

Okay, fair enough, thanks.

Operator

Our next question is coming from the line of Sapna Srivastava with Goldman Sachs. Please state your question.

Sapna Srivastava – Goldman Sachs

Hello. Hello?

Paul Friedman, M.D.

Good morning, Sapna.

Sapna Srivastava – Goldman Sachs

Hi. Congratulations on a great quarter and a great launch. Most of the questions have been asked. I just had a quick follow up. I was trying to really just understand in between the high-risk patients and intermediate to low-risk, what is the differential in awareness between physicians and diagnosis rates currently form your understanding, for our understanding, to see how the drug can pick up in the low-risk patients as we move forward in the launch?

Patricia Andrews

Sapna, I don’t know if it’s a difference on diagnosis. I think it’s a difference in the physician’s perception of how that patient presents and are they presenting -- let me re-step. I’m going back to, of course, physicians in the community tend to look at it as the patient being mild, moderate and severe rather than on prognostic levels.

So with that, I think their characterization is usually based on the extent that the patient has splenomegaly and the extent that the patient has symptoms. Sometimes they may factor in whether the patient is transfusion-dependent or not and what their platelet count is, but in general, they work on splenomegaly and symptoms and that the diagnosis is for MF, but then they just characterize them on one of those three ways.

So I think your question on penetration into that group, into those intermediate patients who may be more -- or high risk may be more mild in their symptoms. That would be the longer term challenge that we face is to make inroads into that patient population and I feel confident that we will do so. It just -- it will be gradual because it takes a while for a physician who doesn’t have a lot of patients who have MF to get comfortable with the treatment paradigms, the right patient population, how you manage that patient and the benefits that patient gets.

So those are all things that just come with time, so that’s how we see -- and they come with education in the marketplace and being -- and having a speaker from the platform at educational events, talk about the product and the treatment. They come over time through education, experience and growing comfort levels.

Sapna Srivastava – Goldman Sachs

Thank you so much.

Operator

Our next question is coming from the line of Elliott Savis [ph] with Savis Research [ph]. Please state your question.

Elliott Savis – Savis Research

Hi. Thanks for taking my call. Just wondering if you could talk about your estimates for duration of therapy for patients on Jakafi. Thanks.

Patricia Andrews

MF is a chronic disease and Jakafi is a chronic medicine, so we would expect, just as we saw in the clinical trials, that many patients who go on drug do, in fact, stay on it for many years. However, there will always be some patients who stay on it less and some who stay on it very long periods of time.

So that’s our anticipation going forward. It’s too early in the launch cycle to make any -- draw any conclusions from real world experience. Many patients will have only been on drug for a month or two months.

Elliott Savis – Savis Research

Is there anything in clinical trial data that helps you estimate duration of use?

Richard Levy

In the Phase II study, which is the longest use which started in 2007, data was presented at ASH this past year by Dr. Verstovsek showing that at that point, the median duration of treatment was about three years. But again, as Pat says, clinical trials and real world can be somewhat different and we just can’t assess whether the real world is going to be matching that number yet. That’s something we’ll look at over the next couple years.

Elliott Savis – Savis Research

Okay, thanks.

Operator

There are no further questions at this time. I will now turn the floor back over to Dr. Paul Friedman for closing remarks.

Paul Friedman, M.D.

Okay, thank you and thank you all for your attention and questions today. I think we’re off to a good start, but it is a start. We have confidence that we will grow the product and think we’re excited about that prospect.

We’re excited about the RESPONSE study and we are also pretty excited about the RA data that’s going to be presented at ULAR. We’re all going to be sitting with bated breath for the upcoming advisory committee at ontelprecitnib [ph].

Some of the programs I haven’t described are, I think, pretty interesting programs and we’ll roll them out over the next couple of quarters for you, but it’s just, again, for competitive reasons, just a little bit premature, which is why we keep alluding to them but we haven’t given you any specifics.

Anyway, thanks for your attention and we’ll talk to you again soon. Bye-bye.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time and we thank you for your participation.

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