Rachel McMinn – Bank of America
Paul Friedman – CEO
Patricia Andrews – Head of Commercial and CFO
Incyte Corporation (INCY) Bank of America Merrill Lynch 2012 Health Care Conference May 15, 2012 2:20 PM ET
Okay. Thanks everybody for joining us especially this last presentation before everyone goes into other hyperglycemic shock in front of lunch. My name is Rachel McMinn. It’s my pleasure to introduce our next company, Incyte, Dr. Paul Friedman, CEO of Incyte. I’m sure most of you know very well. We also have Pat Andrews, Head of Commercial and Chief Financial Officer, Dave Hastings. Thanks so much guys.
Yes, hi. I do have a few prepared remarks not so many that it will impede Q&A. So, this is the long version of our forward-looking statement document. We – answered, if you look at our latest 10-Q filing that was in March for risk factors associated with our business and for – and remember that any forward looking statement I we might make are covered by this long previous year.
We have a broad and growing pipeline. Last November we launched Jakafi known generically as ruxolitinib it’s our first marketed product. It’s approved for use in patients with intermediate or high risk myelofibrosis and it’s the first and only product to be approved by the FDA for myelofibrosis. So, it’s also the first to be approved for any indication of a new class of drug which inhibits a class of enzymes called Janice Associated Kinesis they’re referred to as JAKs. And Jakafi is an oral inhibitor two of these enzymes, JAK1 and JAK2 does not inhibit JAK3.
Our rest of world partner, Novartis just received a positive opinion from the CHMP for EU approval for ruxolitinib for myelofibrosis and they expect to begin commercializing ruxolitinib later this year. And beyond its development in myelofibrosis, we are studying ruxolitinib in a number of other indications that could add to its therapeutic and commercial value and most advanced is the clinical development in polycythemia vera, it’s another myeloproliferative neoplasm.
PV patients, at least a significant sub set of PV patients can exhibit the same signs and symptoms that you see in myelofibrosis, same pathogenesis, cytokine mediated. And our Phase II results indicate that ruxolitinib is also quite effective in reducing the disease burden in these patients. A global Phase III study, it’s called the response trial is underway. It’s conducted under an SPA in collaboration with Novartis and it’s on track to complete in 2013. There are also ongoing trials in leukemia, lymphomas and in pancreatic cancer.
The second JAK1 and JAK2 inhibitor which is licensed worldwide to our other partner Lilly, this is Incyte 28050, I’ll come back to that later, is currently being developed as a treatment for rheumatoid arthritis and for psoriasis. Now to emphasis here and again that 28050 does not inhibit JAK3, it’s I think an important distinction with respect to ruxolitinib and the vertex compound that’s in earlier development. Beyond the JAK inhibitors, our early stage oncology programs for c-MET and for IDO are ongoing and we have several new proprietary programs in oncology and inflammation.
So, in terms of our first quarter financial results, we ended the quarter with $236 million in cash not including a $25 million of restricted held in escrow for interest payments through October of this year on our convertible senior notes.
Our quarter – our ending first quarter cash position excludes the $40 million milestone we earned from Novartis based on the CHMPs recommendation for EU approval of ruxolitinib. The milestone will be received and recognized as revenue in the second quarter and in addition and importantly will earn another $60 million when Novartis receives prices and reimbursement approval from a subset of the major European countries and we expect that to occur sometime early in 2013.
Regarding our product revenue for the first quarter, it’s important to note that we are still using the sell-through method for revenue recognition and this means we defer revenue until the specialty pharmacy ships product to the patient.
We expect to transition hopefully shortly 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. For the quarter ended March 31, we shipped $25.1 million of our product to our specialty pharmacies and we recorded gross revenue of $21.2 million. The 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. So, our net deferred revenue was $6 million as of March 31.
We’re encouraged by these first quarter sales as well as the feedback from the field force that physicians who tried – by how quickly the product works and how dramatically it improves the debilitating symptoms in splenomegaly that affects many patients with Myelofibrosis. Importantly, the reimbursement process has been going well and when needed our IncyteCARES program has been helpful in assisting patients, gained access to Jakafi.
As we said during our first quarter call, most of the patients receiving Jakafi thus far said to have more severe symptoms and larger spleen, in fact a subset of the patients in a subset the severity of their disease would have precluded them from participating in the Phase III trial. For example patients with platelet counts less than a 100,000. It will take time to expand the use of Jakafi in patients with less advanced disease but who have some degree of splenomegaly symptoms, they have more education, more direct selling and more familiarity with product will be needed.
These are reasons why we believe that the launch will be steady and why we believe growth rates for new subscribers and new patients may be more gradual than what we saw in the first quarter and why we expect peak sales in MS to occur in two to three years.
Now this is the second JAK1 and JAK2 inhibitor and it is partnered in a strategic alliance worldwide with Lilly INCB28050 and also has the Lilly number – not that familiar with but it is still 28050. Lilly has worldwide rights to this inhibitor for all chronic inflammatory diseases.
The phase IIb in rheumatoid arthritis patients is complete and there will be a late-beaker at EULAR describing the three-month results and we are expecting the six-month results to be presented later in the year at ACR. Lilly will obviously leverage the results from the recent FDA advisory committee meeting on Pfizer’s (inaudible) to finalize their Phase III plans and we expect that that program will commence later this year.
Last week at the advisory committee is a good outcome for the JAK inhibitory class and we think for us and Lilly a very good outcome and gives Lilly an opening to position this JAK1 and JAK2 inhibitor as best-in-class.
Additionally, Lilly recently began a 240 patient dose ranging study to explore the efficacy and safety of 28050 in adults with moderate to severe psoriasis and provide enrollment goals as we expect, we should see that for the primary endpoint in the first-half of 2013.
So, that concludes my formal remarks and I’m thinking it will be useful to leave this pipeline slide up as a reference during the Q&A. Thanks.
Rachel McMinn – Bank of America
All right, great. Thanks very much. Are there any questions from the audience? Yeah, in the back please.
So, what is the $6 million of deferred revenue? Is that all going to be recognized in the second quarter and is that the cumulative revenue that hasn’t been recognized since launch?
Yeah, exactly. So, that’s under the method as Paul described, we defer revenue that hasn’t been dispensed yet that that will come in when we transit in the selling method. We haven’t talked about when we are going to do that, but sometime this year.
Rachel McMinn – Bank of America
And then maybe we can just take a step back and talk a little bit more about the size of the MF market, right. Pat has been talking for a long time now, well before the launch started but this should be steady and gradual, you are seeing that at a level that certainly was significantly beyond consensus. Can you just remind us what you think the number of patients are with MF and why you wouldn’t see very high levels of penetration over time as the divisions gain comfort with the drug?
Okay. Thank you, Rachel. So, the size of the MF market in the United States is 16,000 to 18,500 patients, we’re very confident of that number because we get a thorough analysis of some claims, databases, and some of the databases to have a 100% of the data, some extrapolation, but it’s also fairly large base. It’s the retrospective analysis of ICD-9 coded for myelofibrosis.
So, we feel from a retrospective look that’s a very strong number. We’ve always talked about the uptake of Jakafi has been gradual rather than immediate, which often occurs in many oncology products. The reason for that is very much related to the disease and the nature of the disease, so for example in myelofibrosis unlike in many cancers, there is a very heterogeneous patient population, and they could have disease that is low intermediate one, and intermediate two, or high risk as the prognostic scores, and they might have an average life expectancy of two years, or four years, or six years, or more than 11 years, just very different than some other cancers where the urgency to treat is immediate because patient has a very shortened life expectancy.
It’s shortened in myelofibrosis, but not to the extent it is in some others. Consequently when we take that and you add it to the fact that most MF patients are just under community practices. They are not concentrated in academic centers, and it’s a disease, which is relatively rare among cancers, so most physicians only have a handful of MF patients they have, one, two, three, four, five, some number like that, so they are not as knowledgeable about the disease and they are not as comfortable moving immediately towards treating patients in it.
Remember that physician has the first belief of do no harm, they want to make sure that this is going to be the right drug for the right patient population hence we always expected that initial uptake would be in the more severely ill patient that is if he had very enlarged spleen and very burdensome symptoms.
And it would take time off a doctor gaining comfort with use in that patient population and seeing the results and seeing how you manage the patients and before you would do earlier stage in the disease, patients with any degree of (inaudible) or symptoms we’ve always thought that that would take probably about two to three years for any patient who has myelofibrosis who is likely to go on drug to actually go on the drug. So, that’s the philosophy of why it would be a steady gradual increase other than an immediate uptake and then flat sales thereafter.
Rachel McMinn – Bank of America
And then there’s been this debate about symptoms of the disease and heavy burden of the disease versus what are you actually doing in terms of fibrosis progression maybe you can share with us your perspective of – I mean obviously everything matters you want to sort of de everything, but I guess what are physicians experiencing and any differences between the Phase 3 experience and what you’re seeing on the field?
So first on symptoms, myelofibrosis is the disease characterized by splenomegaly which is enlarged spleen, debilitating constitutional symptoms and anemia. These debilitating symptoms each one individually may not seem like that much but collectively they have a substantial effect on the patient’s ability to activities of daily living, quality of life and collectively on the patient’s long-term survival.
So, treating symptoms is actually treating the disease in this case and because the symptoms really due debilitate the patient a physician who may have had a patient and have been treating for them for a number of years without much available now has something to actually give these patients and can see a fairly dramatic result often very quickly in many patients.
So, I don’t want to downplay treating symptoms I think it is absolutely critical and the essence of the disease and splenomegally is part of that, splenomegally can cause some symptoms because in it your spleen frequently goes to a very large size. So, you take something which is in your abdomen and normally the size of your fist and it might become the size of a football, it sticks out below your left ribs.
And it can stick out like this for those listening to this rather than seeing me I’ve put something that looks like a football against my left rib and it compresses in on your stomach that would make you less inclined to eat, it makes it difficult to bend over, it causes abdominal pain in and of itself. The disease also has inflammatory cytokines which cause a number of other issues, it contributes to the rapid weight loss often seen in MF patients, pruritis which is severe itching, bone pain, muscle pain and overwhelmingly MF patients have fatigue.
So, when you take a drug like Jakafi which was studied in a subset of those debilitating symptoms as well as in reducing the spleen size and it worked generally quite quickly usually you get a significant reduction within a month for the symptoms and you feel it’s earlier than that and you get probably a maximum spleen reduction in a couple of months than more closely after (inaudible) When you have benefits like that in a product, that is of self sufficient. That being said we do have some data and I’ll let Paul talk about that which also talks about longer-term survival.
We don’t have the survival claim in the label and it’s unlikely that the FDA will at any point add it to the label. It’s not inconceivable, but it’s probably unlikely. But what we do have is in the COMFORT-I trial, COMFORT-II, it’s not possible to analyze COMFORT-II for overall survival, but we had a planned, pre-planned four months safety update after the primary endpoint and at that point in time, the Rux group had a statistically significant P value less than 0.05, hazard grade show about half with respect to the placebo group and survival and that is in the manuscript, the publication in the New England Journal of Medicine.
Beyond that, there is a group of patients that Dr. Verstovsek at MD Anderson has followed since Phase II, now many of these patients are out four years. And that data show – so what you have there is no control group. So Dr. Verstovsek and his Italian colleagues have gone into their databases and come up with a demographically match control group and then you compare survival and the ruxolitinib treated patients do much better, but there is always a criticism of using a retrospective demographically matched control group even though the data look very convincing.
But if you just take the MD Anderson group where we have high-risk patients, the sickest ones who have median survivals of about two years and the intermediate too risk patients and they’re about, they are divided about 50-50 in the phase II trial. Those patients have survivals more like four years. At 30 months, the high-risk patients survival curve falls right on the intermediate too risk patient curve. It’s a dramatic difference in survival at 30 months. That’s totally internally controlled. There is no demographically controlled group.
It’s all the patients who started at day one. And so that data hopefully will be published soon and the two pieces of data together I think are fairly convincing that the drug is allowing people to live longer, but we don’t have to claim. And it makes sense because only about 15% of MF patients actually die from conversion to acute myeloid leukemia, 85% die from the disease and from the kinds of things that Pat has described that the drug improves. And so I think these results are not surprising, but there have to be, physicians who have to be made aware of that data in ways that are less strong than having a label, having it in a label.
Rachel McMinn – Bank of America
And then just – sorry go ahead please.
In light of the Phase III – sorry the VX-509 data, which is specifically JAK3, and then we have a convert compound specifically for JAK1, has you’re thinking on the relative importance of inhibiting the JAK changed the tool with regards to 050, and then on the back of that could you just remind just how you see 050 being differentiated from (inaudible) for instance? Thank you
Yeah, so we’ve all always thought so the cytokines which obviously are what we’re blocking signaling of cytokines with the JAK mechanism, the most – the key player cytokines signal through heterodimers JAK I, JAK II; JAK III is a much less significant player in my opinion, I never have thought that you wanted JAK III and to go back and think about it Actema simply takes out interleukin-6 and gets pretty good result as JAK I, JAK II, there is no JAK III, cyclosporine and other immunosuppressants that prevent T-cell activation and proliferation, don’t do very much in RI and that’s kind of what JAK III was all about in the beginning it was to be transplant rejection agent.
Our data have looked just as good Pfizer’s and look just as good as advisors and anti-TNFS and our Phase IIa study. You put all that together and why would you want JAK3, it is just kind of add immunosuppressive baggage have been – I just don’t see it myself and I don’t think – we don’t know the structure of the vertex compound. I don’t think it is – I think it’s also hit JAK1 and JAK2 because they do get lipid elevations in their study but they also see a lot of infraction. So, on that – I still haven’t changed there – we’ve always thought that if you – if you could do JAK1 so I like – I think the (inaudible) of those ideas is a good one.
I think it’s early days for that compound and – but the battle look very nice and I think if you could take out JAK1 and not hit JAK2 and get the same level of efficacy you could avoid any potential bone marrow issues, but having said that if you look at Pfizer’s 5 mg dose then you look at our 4 mg dose and even our 7 mg dose in Phase IIa. There is not much in the way of hemoglobin change at those doses, it’s just the higher doses then you get full efficacy.
So, the one thing – so, I’m not sure at the end of day if that’s going to be all that important to (inaudible) but there are early day data looks interesting. The one thing I cannot connect on and I think they are having trouble with themselves and we said what happens is they didn’t seem to any lipid change at all. That would be good if it’s real, but it’s a small number of patients and only on the drug for a month, so we have to see because if we hit JAK1, you’re still going to shutdown the inner looking 6 pathway and maybe there is some plates on that pathway where you could get full efficacy and not do anything to lipid but that must be a very narrow part of the dose response, I would say.
Rachel McMinn – Bank of America
And Paul to differentiate 050...
Yeah, that’s I’m heading there. So the potential differentiation of 050 is we don’t hit JAK3. So, if JAK3 is contributing to any of the things that the ad-com discussed and we ’re concerned about. We might avoid that or have less. In particular you’d be talking about incidents of malignancy or serious infection. Time will tell on that, I don’t know that. We are all once a day. We’re a bona fide once a day. The Pfizer drugs inherent or half way there is about an hour.
They are going to have a hard time making a – I think once a day dose without getting peak and valley that they don’t want. They might be able to do it, but I think it’s going to be a challenge. They have ruxolitinib is catabolized by three steps. So there is a significant number of drug-drug interactions. 050 is excreted by the kidney unchanged. So, there is no drug-drug interaction and the only dose modification that would have to made would be a simple one where below a certain GFR you would have dose. And so I think it’s a much – that’s a much cleaner profile.
The other thing the lipids I think we’ll see the same thing they have to creatinine which is in fact a transport phenomenon and not a change in GFR. I think that’s mechanism based. We’re likely to have that. and we don’t see – we haven’t seen at least in Phase IIa the same incident of what I would say relatively modest LFT elevations that (inaudible), I don’t think that’s a differentiator, but probably a less important one. I think that’s probably, but probably covers a lot of that.
Rachel McMinn – Bank of America
And then just back to – oh, I’m sorry, (inaudible) will ask another question?
Can you talk about – here about your early experience with – can you talk about your early experience with the duration of therapy and dropout rates with Jakafi in the first four or five months?
It’s – because we only had four months of experience. It’s really too early to talk about discontinuations or adherence to therapy, but I do refer you to the clinical trials where COMFORT-I which was the U.S. study had the discontinuation rate due to any cause of 14% at the 24-week mark and COMFORT-II which is on the study that ended. And COMFORT-II which was the European study at the 48-week mark had an 18% dropout rate, I would expect in the real world that the drop rates will be higher.
They would be higher for a variety of reasons including that the patients are some times less motivated or followed less closely when they are in the real world than when they are in the studies, but also you might expect that earlier on that the discontinuations might be higher because the patients that were sicker or more severely ill and we are definitely getting more severely ill as our first patient, either would go on the drug and they might not have been able to actually be eligible for the clinical trial and that would also be true with patients who had platelets less than 100,000.
They were not part of the clinical trial, but we do have a broader label because there has been no therapy for these patients and it honestly is, for its – to wrong to deny them something when the drug clearly treats the splenomegaly and symptoms associated with disease. So, we have a broader label and those patients with lower platelets might also experience greater dose holds or discontinuation just initially, but over time as we move through to less severely ill patients who have some degree of splenomegaly and some symptoms that are intermediate or high risk, I would expect that discontinuation of that would decline and adherence would increase just because the patient population becomes healthier. So, that’s probably all we have on it that we would be able to talk.
Rachel McMinn – Bank of America
And two very quick questions, not sure we’ll get to, but revenue guidance (inaudible) when do you give sales guidance and then Paul on the PV study, all those changes there in IRB, any change from expectations on the PV study and all that?
From the guidance perspective, we know we’re thinking about that that when we do give guidance we want to make sure that it’s something that’s attainable and we can be comfortable with what we are giving, and so we’re thinking hard about that right now Rachel.
On the other point, the IRBs have now all approved the amendments because the length of the study is now shorter even though we had slow recruiting because of the requirement for so many things that Europeans wanted in the beginning, now that we simplified the enrollment. We began to see a pickup in enrollment and we remain confident that the study will be enrolled before the end of the year and we will still file the SNDA by the latter part of 2013 and we should be able to market the drug and have the label update by the middle of 2014. So that timeline hasn’t changed.
Great, I think we’ll have to leave it there. Thanks so much everybody.
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