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Incyte Corporation (NASDAQ:INCY)

Morgan Stanley Global Healthcare Conference Call

September 12, 2012 10:55 am ET

Executives

Paul A. Friedman – President and Chief Executive Officer

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

Analysts

David Friedman – Morgan Stanley & Co. LLC

David Friedman – Morgan Stanley & Co. LLC

All right. I think we will get started here and thanks everyone for joining us. I’m Dave Friedman, one of the Biotech Analyst. And in terms of personal and research disclosures, you can look at morganstanley.com/disclosure. And I’m joined happily up here by the team from Incyte on the far side Dave Hastings, Chief Financial Officer and then on the near side Paul Friedman, and the relation President and CEO.

And we’d look for this to be as interactive as possible, so anyone should please feel free to raise your hand and shout out, and we’ll make sure we can get your questions asked. So thank you both again for joining us and I think we can just jump right in. You guys relatively recently have had a drug approved for a rare blood diseases, and so maybe you can just talk about the drug, the approval and how the commercial roll out has gone so far.

Paul A. Friedman

Sure. So the drug is JAKAFI, generic name ruxolitinib. It is an inhibitor of two kinases, in a family of kinases known as Janus associated kinase. They are JAK1, JAK2, JAK3 and Tyk2, were all related and a family of enzymes. Our compound inhibits JAK1, and JAK2, but not JAK3, and inhibits Tyk2 to a significantly less degree than JAK1 and JAK2.

Drug has worked extremely well in myeloproliferative neoplasm called myelofibrosis of which there were about 18,000 known patients in the United States. It treats the very debilitating symptoms of the disease and also as part of that shrinks the very large spleens that many of these patients get. There is accumulating data that shows that the drug may well prolong survival, although we don’t have that in the label. And the drug was approved for use in intermediate and high-risk patients which comprise about 85% of that 18,000, and without any restriction on platelet count, despite the fact that we had only studied patients with platelet counts above 100,000 in our Phase III studies.

So the approval was towards the end of last year, and our revenue is growing in a steady and sustained way. And we are getting reports back from the field and from physicians that they are seeing pretty dramatic effects which is the same thing we saw in the Phase III studies.

I’m sure you don’t want to get more specific about some aspects of that, but in general that’s kind of the story.

David Friedman – Morgan Stanley & Co. LLC

Great. And so, maybe if we can just jump into the types of patients that have come on drug to date and it’s only been a couple of quarters. But if you can talk about just in the general sense the types of patients that you saw coming on drug in the first couple of months versus the contrast of the types of people you’ve seen come on drug in the past couple of months.

Paul A. Friedman

Sure, but I think that is important to note. So the beauty of the label was we did not get a restriction for platelet count. The difficulty with the label that we’re dealing with aggressively is that without a limitation on platelet count, we saw in the beginning of our launch a very high proportion of the sicker patients who are too sick to get into our clinical trials that is patients with platelet counts less than 100,000. I mean over 60% of the patients who came in early in launch had platelet count in that range.

The two doses in the label are 15 milligrams and 20 milligrams twice a day, which were quite well for people who have platelet counts above 100,000 and we are challenging for people with platelet counts below 100,000. Because one of the major reversible side effects of using the drug are myelosuppression both decrease in platelet count and decrease in red count, although that latter is a somewhat transient phenomenon because there are recovery mechanisms that occur while you are still on the drug. So the platelet count early on can go down, it goes down below a certain level patients have to discontinue the drug.

And we have – since launched on a very nice study in low platelet count patients where we start them on a lower dose 5 milligrams twice a day and work up and we are finding that almost all of them can get to 10 milligrams BID and at that does they are getting essentially the same results on spleen reduction symptom relief that the less sick patients get at the higher doses and we put that in – we send that to the FDA for an update on the label and when requested we are obviously explaining that to physicians who might start a patient with low platelet count on the drug.

But as you might expect those patients were sick, much significantly sicker than the patients that we are currently seeing coming to the group of people who are now getting the drug and who we studied in Phase III. So some of them died, some of them can't tolerate the higher doses, so early on the discontinuation rate was higher. It seems to be modulating.

We’re going to need some time to see where the level is off, but I think an encouraging and analogous situation is Novartis’ had a year to piggyback on our learnings and they have a very large expanded access program with 2,500 patients in Europe on the drug. And the – and even in countries where you don't have tertiary care centers, but community doctor was taking care of patients, the dropout rate we've been told is low, it’s essentially what we saw in COMFORT-II, which was 18% of one year.

And so we have a dose now that can handle sicker people. We have fewer sicker people in the mix and I think logic dictates that the discontinuation rate will modulate, and we’ll settle probably somewhere above the 18% that we saw in COMFORT-I, but it probably will add some towards that number.

David Friedman – Morgan Stanley & Co. LLC

And then, in terms of – you sort of noted sicker people coming on, but the focus on the hematologic issues and it is a marrow disease, but where you seeing people that were more advanced on other parameters, sort of extra large liver and spleen or severe cachexia or anything else and how did those people do in the absence of any marrow involvement or severe marrow or is it impossible to separate those two?

Paul A. Friedman

I think it’s hard. I think it’s hard to separate it. It is not 100% correlation that if your platelet count is 75,000 you are significantly sicker, but the overwhelming majority of those patients are significantly sicker and their marrow is much less resilient than the less sick patients.

David Friedman – Morgan Stanley & Co. LLC

And then in terms of what you are seeing now and if you think about you have organomegaly, symptomatic organomegaly and then all of the constitutional symptoms. Are each of those individually, have they been drivers of people choosing to come on drug or is it primarily the heavy constitutional symptom burden or primarily organ symptom burden that is the main driver?

Paul A. Friedman

I think in fact. I think it’s a blend and I don’t want – I can’t separate that for you at this point in time, but most of the patients that have the large spleens also have significant constitutional symptoms, it kind of go together.

David Friedman – Morgan Stanley & Co. LLC

Okay. And then in terms of the dose titration, are you seeing any physicians who either had experience with the drug in the trials or who have been very early adopters, have you seen them able to dose titrate effectively in the clinical setting yet or is it going to be a question of submitting this trial that if you’re now getting in on…

Paul A. Friedman

For the sicker people…

David Friedman – Morgan Stanley & Co. LLC

For the sicker people, yeah.

Paul A. Friedman

No, they have and we are beginning to see it out in the community as well.

David Friedman – Morgan Stanley & Co. LLC

And what is the time line to get that on, to get that study on your label and to have that as part of your educational detail?

Paul A. Friedman

February would be the latest. It’s a six month review, we are hoping to get it before that, but that would be the latest. But we do have material that at the – our MSLs and ESLs and our field force use if requested to explain to a physician who has one of these sicker patients. Now the data that we have and may be that’s a better way to go than starting it 15 to 20 BID and I think we’ve made good intros there in the past couple of months.

David Friedman – Morgan Stanley & Co. LLC

And then just for everyone’s clarity, can you just discuss the strength of the drug that are available and any difference in pricing among those?

Paul A. Friedman

So we have tablets that range from 5 milligrams to 25 milligrams. The dosing is BID. The pricing is flat. So the actual BID dose does not matter. Most of the prescriptions we’ve seen as you would imagine are at 15 to 20 twice a day, but we are seeing a significant number at 10, some at 5. 5 is not a – it’s not homeopathic dose, but it’s not going to give you maximal efficacy in most people. But if you wanted to come in generally and test, you could start there and then move up and some physicians choose to do that. 10, the data look like good, and the hemoglobin doesn’t move at 10, so 10 is a good dose. And we are gathering more and more data both in the sicker people, but also in people who would have qualified for COMFORT and showing that you get very comparable effects on spleen and symptom with the 10 BID dose.

Question-and-Answer Session

David Friedman – Morgan Stanley & Co. LLC

Any questions? Okay, so, I guess one other question around dosing then is, are you seeing people either use the drug once a day or every other day either a higher milligram dose, but less frequent dosing as an alternative way to, to try to moderate some of the side effects?

Paul A. Friedman

So, I haven't seen any every other days. They are very low percentage of people who are using the drug QD. Our data even at 25 once a day, are – it appeared in studies that we did in Phase II, that it’s not safer and it doesn't work as well as BID. And so in those instances, we are making an effort to contact people or physicians in particular and walk them through why that is not a good thing to do.

Unidentified Analyst

Hi, Dave, you might have been thinking about moving on to or changing gears at some time, but I just wanted to ask management to speak to the rheumatoid arthritis opportunity, timing differentiation, what to watch et cetera?

Paul A. Friedman

We were going to get to that.

David C. Hastings

I was, you can go there now. We’ll go back. So we expect the Phase III, the other compound is called Baricitinib, and it was Incyte 28050. It’s about to enter Phase III. It’s several years behind Pfizer’s tofacitinib. These drugs – just to say, so the drugs are oral kinase inhibitor, the efficacy in multiple trials with tofacitinib and with baricitinib is at least comparable with what you see with Humira and the drugs seem to work just as well in that growing population of patients who are either anti-TNF therapy resistant or people who have had in effect, but then failed. And so the market size is obviously very large.

The differences between tofa, which had – I thought a positive, a quite positive advisory committee meeting there, some concerns with the safety of the drug, but the difference between tofa and baricitinib are the following: bari is clearly once-a-day drug, tofacitinib is twice-a-day drug. Tofacitinib is catabolized by three sips. There are a lot of drug-drug interactions that will be listed, how many of them end up being clinically relevant is another question, but because the drug is – I believe because the drug is catabolized in the liver, you do see a modest liver signal with tofacitinib. Baricitinib is excreted essentially unmetabolized in the kidney. So the only dose adjustment that one would have to make is in patients with significant renal disease, you’d have to half the dose. There shouldn’t be any significant drug-drug interactions. We’ve really not seen the liver’s signal.

Although, we’ve not done studies head-to-head with tofacitinib, when you look across studies and compare at same place in development, our efficacy data at 4 milligrams once a day looks a bit better than tofa, but without going head-to-head, I wouldn’t want to say that, that’s true or not true, but we look at least as good, maybe somewhat better.

The other thing about tofa is that, tofa is a pan-JAK inhibitor. It takes out JAK1, JAK2 and JAK3. It was originally put into the clinic for transplant rejection because the target JAK3 is very important for a T-cell proliferation, T-cell activation. We don’t hit JAK3, and yet our efficacy is at least as good, so you don’t need JAK3 to get the efficacy that you see in rheumatoid arthritis, and therefore you don’t want the added immunosuppression that you get with JAK3.

So whether or not in large patient populations over larger periods of time, we’ll see a better safety profile with respect to risk of infection, because we’re down modulating the immune system, remains to be seen, but I think at the very least, it will remain an advantage at a marketing level, and it could very well turn out to be that, our safety profile will look a little better. So that’s kind of my song and dance on baricitinib.

David Friedman – Morgan Stanley & Co. LLC

And then just in terms, while we’re on it, to finish up, in terms of the timing, we’ve been expecting to see the six month data this coming fall.

Paul A. Friedman

Right.

David Friedman – Morgan Stanley & Co. LLC

Anything obviously without talking about the data, are there key aspects of the data in general that you believe people should be focusing on to try to understand the value of the drug clearly?

Paul A. Friedman

Well, I think what you should look at, and we did this in Phase IIa, so I’m pretty sure this is what you’re going to see, but in a larger number of people. You see efficacy results that look better in six months than in three months. And in particular, you see patients who initially is in the three-month time frame had achieved ACR20s. And we still have good proportion at three months who were 50s and 70s, and even some ACR90s. But that spectrum swings toward more efficacy over time.

And I think you’d want to be looking at whether or not you see at six months anymore of the safety signal than you see in three months. What we found is that the 4 milligram dose is really pretty good with respect to hemoglobin. You won’t see much change there, but you have to look I think for whether you see any evidence of opportunistic infections or anything of that sort, that gets worse over time.

David C. Hastings

The only thing I’d like to add about that opportunity is the royalty rates, very favorable for Incyte. They started at 20%, and range up to the high 20% on a tiered basis. In exchange we are co-funding the Phase IIb and Phase III studies, but that’s very attractive economic opportunity for us.

David Friedman – Morgan Stanley & Co. LLC

And then just, I guess the last question is, is it going to be until Phase III that we see, radiographic data in terms of disease progression and joint disease progression for the drug?

Paul A. Friedman

I don't know what Lilly is going to – it’s really Lilly’s call there. I think there maybe some data to look at – at ACR. I don’t think it’s going to be straight up the logical data. And I think that will be Phase III.

David Friedman – Morgan Stanley & Co. LLC

Any questions about the RA program at all? So just one last thing I wanted to touch on which you brought up briefly in terms of myleofibrosis was the survival data that you guys have been having mature. So I guess the first question is if you can just summarize what you’ve seen and most recently that you can talk about survival wise in COMFORT-I and COMFORT-II. And then how you expect to be able to try to use these data as a maturer?

Paul A. Friedman

Well, just to answer the latter, I doubt well that we're seeing in the (inaudible). I mean it's conceivable, but I think it's just not likely the way the pivotals were done. So you're going to have publications, you're going to have MSLs, you're going to have KOLs, who will be able to address that if physicians wanted to talk about it.

So COMFORT-I, The New England Journal paper has the survival data that we had at that point in time. There was a planned four month safety update after the primary end point was reached, where survival was evaluated. First it's the placebo controlled group in COMFORT-I. And the hazard ratio, survival hazard ratio is like 0.5, it's a little bit higher than 0.5:2 something like that.

COMFORT-II is more complicated study because it was 2:1 randomization. It was easier to cross over, out of the best available therapy group. Having said that, I’m anticipating Novartis may well present data on this at ASH, and I would just say stay tuned for that. Beyond that the data that continues to accumulate from MD Anderson that was published in blood. I think it’s very compelling data. What Dr. Verstovsek did there, and that’s a more recent publication in The New England Journal, he has followed 107 patients who were put on the drug, now three plus years ago many of them, which I think is a testament for how long you can stay on the drug also if your doses is proper.

He and his Italian collaborators, picked historically match controls who could have gotten into the COMFORT study and studied them compared to his group of patients and he definitely see a difference in the Kaplan-Meier curve from the historical controls. The problem or the criticism with that is that you’re using historical controls and I think that is a valid criticism.

To me the really compelling piece of data in the paper is looking at his high-risk patients versus his intermediate too-risk patients, so this has no historical controls. It’s completely internally controlled and what’s happened out the 32 months is that the high-risk patients survival looks identical to the intermediate too-risk patients survival.

Intermediate too-risk patients have a medium survival of four years. So at 32 months we're not out far enough to really say much about them. High-risk patients have a medium survival of two years. So, shifting that curve to where it looks identical, the intermediate to risk, is a substantial survival benefit. I mean it’s two years extra life immediate. So I find that very compelling piece of data. And I think as this goes along and perhaps in another cancer or another study we show survival benefit I think people will begin to be more cognizant of this potential advantage.

David Friedman – Morgan Stanley & Co. LLC

And in terms of what you’re seeing there, what do high-risk patients typically die from? And then in that study, is there a sense within that normal mix are certain, causes mortality, underrepresented and maybe that’s the – where the drug is having its benefit?

Paul A. Friedman

So, only about 15% of patients die from leukemic transformation. The others die from things that should be benefited by JAK inhibitor therapy. Shrink the spleen, you can take a deeper breath, you’re less likely to get pneumonia; you have better blood flow from your legs, you’re less likely to have a clot. The drug reverses cachexia. So there, people kind of waste away and die of these kinds of things. And the mix in the paper I think pretty typical of the mix in high-risk patients in general. So I don’t think there is a bias there.

One interesting aspect that’s – of the paper that Dr. Verstovsek pushed a bit was, he found that if the people who really had good spleen size reduction also had the best survival, but I think they are obviously related. And so I personally can’t make all that much out of that, but that was a point that I may would indicate now.

David Friedman – Morgan Stanley & Co. LLC

Any last questions on myelofibrosis at all? So maybe in the last minute or two, we can just touch on polycythemia vera, which – where you are in Phase III and that’s your next planned indication. So there have been change in enrollment criteria, and where are you in terms of enrollment timelines, or they still on track from – you’re resetting the criteria and what have you learned from the MF launch that you believe you can apply to PV?

Paul A. Friedman

Well, so the PV study is on track to close enrollment by the end of the year in which case we would expect to have last patient out late ’13 while shortly they are after and have the sNDA approved, to be on the market in the second half of ’14. We are studying there. We are taking advantage in PV of the myelosuppressive activity of the drug because PV patients have high red counts. They also – the later stage patients have big spleens and they have the same constitutional symptoms that the myelofibrosis patients have. So the study is an open label study against best available therapy. So we can’t do in that study a symptom relief comparison. The dual end point is phlebotomy independence and spleen reduction. We’re doing a second study, a blinded study against hydroxyurea called – the pivotal study is called RESPONSE; this study is called RELIEF, and it’s a 16-week study looking at symptom improvements. So we will be able to have that data as part of the package.

I think because the most limiting aspect of a myelofibrotic patient’s life is not just similar to what you see in late PV, and that is the profound constitutional symptoms and fatigue that – what we’re learning about, what we can do to relieve that symptom methodology and MF applies perfectly to the PV patients.

David Friedman – Morgan Stanley & Co. LLC

Any last questions before we close? Go ahead?

Unidentified Analyst

(inaudible).

Paul A. Friedman

39110? Our compound?

David Friedman – Morgan Stanley & Co. LLC

Question is around the new compound.

Paul A. Friedman

Yeah, I mean it’s a JAK inhibitor with a different profile. And we had some interesting preliminary results there. I just – we’re just not ready to present them yet. And while we’re studying it in rheumatoid arthritis, it doesn’t mean that we would drill whole-hog into RA. There are other inflammatory diseases where we might be more interested in going. I wouldn’t rule out our RA, but it’s still early days for that compound, but it's looking pretty interesting at this point. We actually have a whole – we have got family of compounds with this same profile and this is the first of a number of them.

David Friedman – Morgan Stanley & Co. LLC

I think we’re out of time. So, thank you everyone for joining us, and thank you both for joining us up here.

David C. Hastings

Thank you.

Paul A. Friedman

Thank you.

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