Incyte Corp (INCY) — Q4 2022 Earnings Call Transcript

Thank you, Kevin. Good morning, and welcome to Incyte's Fourth Quarter and Full Year 2022 Earnings Conference Call and Webcast. The slides presented today are available for download on the Investors section of our website. Joining me on the call today are Hervé, Barry, Steven, and Christiana, who will deliver our prepared remarks; and Dash, who will join us for the Q&A. Before we begin, I'd like to remind you that some of the statements made during the call today are forward-looking statements, and are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our reports filed with the SEC. We will now begin the call with Hervé.

Thank you, Christine, and good morning, everyone. 2022 was another successful year in which we delivered strong commercial performance and made significant advancements across all stages of our oncology and dermatology pipeline. Revenues from our current portfolio of commercialized products grew 18% year-over-year, both in the fourth quarter and for the full year to $764 million and $2.7 billion, respectively. Total revenues for the year, which include our royalty, grew 14% to $3.4 billion. As we look across our portfolio, the drivers of this double-digit growth are the continued commercial execution for Jakafi, net sales of which increased $275 million in the year to reach $2.4 billion and initial contributions from recently launched products and indications, including Minjuvi and Pemazyre in Europe and Japan and Opzelura in the U.S. I want to touch briefly on Opzelura, which we believe will be a significant growth driver for Incyte. Opzelura was approved in September 2021 for atopic dermatitis. And this past July, we received approval and launched Opzelura in vitiligo as the first FDA-approved therapy for repigmentation. The approval was well received by dermatologists, patients, and patient advocacy groups and the launch has been very successful. Strong patient demand and increasing formulary access drove net sales of $61 million in the fourth quarter and $129 million for the full year. In 2023, we expect an approval for Opzelura in vitiligo in Europe, which adds another layer of growth for the franchise. Turning now to our regulatory and R&D achievements. Our clinical development pipeline is focused on three therapeutic areas: MPN, GVHD, other hematology and oncology, and dermatology. And we made significant progress across each of these three areas. In LIMBER, we presented new data from ongoing combination studies and disclosed an important new discovery asset targeting mutant CALR which has the potential to be a disease-modifying therapy for approximately 30% of patients in MF and ET. In other hematology and oncology, we presented updated data for our oral PD-L1 inhibitor 280, which shows promise both as a monotherapy and combination agent. We also progressed parsaclisib into Phase 3 for warm autoimmune hemolytic anemia, a disease in which there are no approved therapies. And in dermatology, we continue to expand our portfolio with Opzelura and povorcitinib, focusing in disease area where there is a significant unmet need. Lastly, we had two important updates relating to patents. The first is that Incyte earned pediatric exclusivity, which entitled Incyte to six months of exclusivity added to our patents for Jakafi and Opzelura. This expands our ability to enforce our Jakafi patents through December 2028. This expansion further applied to our existing Opzelura patent. In addition, late last year, we obtained an issued patent and allowed claims for the treatment of atopic dermatitis and vitiligo, respectively. We are confident in the strength of these claims permitting us to protect Opzelura out to 2040 in the U.S. Before moving into the outlook for 2023, I wanted to take a moment to look back at the growth of our product revenues as shown on Slide 6. Over the past five years, approvals for new products and indications as well as strong commercial execution of our existing portfolio, has allowed us to grow our product revenues at a CAGR of 18%. On Slide 7, looking at our historical operational performance. On the left is our revenues versus our total R&D and SG&A spend. We have delivered strong operational performance over the past five years with total revenue growing at a 17% CAGR and our operating expenses growing at a 13% CAGR. On the right, we are showing our operating leverage, excluding the impact of dermatology on revenues, and sales and marketing expenses. Here, you can see our operating performance is even more pronounced. We can expect to drive further operating leverage over time with our high-growth dermatology franchise, which is in early stages of launch and where we could see two additional approvals in the near term. Turning to Slide 8. As we look ahead for Incyte, there are four main drivers of sustainable growth, and we are already making significant progress in each of these areas and expect to continue strong momentum throughout 2023. The first driver is our Jakafi franchise and LIMBER program, where we aim to expand our leadership in MPN and GVHD. In 2023, beyond the approval of ruxolitinib XR, we expect important data, including pivotal results for our parsaclisib combination in suboptimal responders to Jakafi in MF. Next is Opzelura where we are launching in AD and vitiligo and where in 2023, we will be launching in Europe. In other areas of clinical development, we expect new data from our oral PD-L1 program and povorcitinib in prurigo nodularis and vitiligo. Lastly, we will be monitoring early data from our CDK2 and mutant CALR program.

Thank you, Hervé, and good morning, everyone. In the fourth quarter, Jakafi net sales grew 9% year-over-year to $647 million and grew 13% for the full year to $2.4 billion. Total patient demand rose 7% in 2022, driven by an increase in new patients across all indications. The launch of Jakafi in chronic GVHD continues to be strong with the total number of patients in Q4 growing 11% versus prior year quarter. A key driver of growth in GVHD is the duration of therapy; and based on recent data, the average duration, which includes both acute and chronic, is approximately 15 months. On Slide 11, as you can see on the left, Jakafi has grown consistently year-over-year ranging from $200 million to $250 million each year. We expect to continue strong growth in 2023 with full year net product revenues to be between $2.53 billion to $2.63 billion. Turning to Opzelura on Slide 12. We had a strong quarter for Opzelura with continued double-digit sequential growth in patient demand in atopic dermatitis and a very successful launch in vitiligo. As you can see on the chart on the right, total demand, which includes both free and paid drug, grew 34% in Q4 versus prior quarter to reach 84,700 units, driven by both new patient growth and an increasing number of refills. Paid demand grew 52% in Q4, driven by continued improvements in formulary access. As a result, net sales grew 61% versus prior quarter to $61 million. Total full year net sales for Opzelura were $129 million. Looking ahead, we expect both AD and vitiligo to be significant growth drivers for Opzelura. In AD, Opzelura is the #1 prescribed branded agent for new AD patients and its impact on itch, which remains unmatched by any other topical therapy continues to be the primary driver of prescribing. We expect the efficacy profile of Opzelura to continue to drive uptake in AD. In terms of additional near-term growth opportunities, pending the results from the Phase 3 trial, we could see an approval in pediatric AD next year for two to 11-year-olds. In vitiligo, the size of the market and the potential opportunity is substantial. There are an estimated 1.5 million patients diagnosed with vitiligo in the U.S. And prior to Opzelura's approval, an estimated 150,000 to 200,000 patients were motivated to seek treatment. As you know, Opzelura is the first and only product to be approved to help patients repigment their skin and this provides us with an opportunity to activate many of the 1.3 million patients that are naive to treatment or who have stopped seeking treatment altogether. And in the next few months, we expect the approval of Opzelura in vitiligo in Europe, where there are an estimated 1.5 million diagnosed patients living with the disease. Slide 14 shows a few examples of patient advocacy and consumer activity within the vitiligo community. We are already seeing high awareness and excitement for Opzelura from patients, and we will continue to build on that momentum throughout the year, including the commencement of TV direct-to-consumer this quarter. And lastly, on Monjuvi, Minjuvi, and Pemazyre. Monjuvi sales in Q4 were $24 million, up 13% year-over-year, and revenues were $89 million for the year. The launch of Minjuvi is ongoing in four markets, and we continue to gain reimbursement in other European countries. Net sales for the full year were $20 million, which includes a negative $2 million of foreign exchange impact. Pemazyre grew to $83 million in net sales in 2022 with $20 million coming from outside the U.S.; again, negatively impacted by foreign exchange by $3 million. In the U.S. Pemazyre continues to grow in total patients on therapy and is established as the standard of care for patients living with cholangiocarcinoma with FGFR2 alterations. With that, I'll turn the call over to Steven.

Thank you, Barry, and good morning, everyone. We made significant progress across our clinical development portfolio in 2022. We had multiple clinical and regulatory achievements throughout the year and I would like to use the next few slides to highlight a few of the key programs. Starting with our LIMBER program on Slide 18. Key data were presented at the 2022 American Society of Hematology Annual Meeting where we had 57 abstracts accepted for presentations. Highlighting two of those presentations, starting on the left, we presented initial results of the Phase 1/2 study evaluating our ALK2 inhibitor zilurgisertib in monotherapy and in combination with ruxolitinib, which demonstrated improvement in anemia and hemoglobin responses in patients with myelofibrosis. Additionally, we disclosed our discovery of 989, a novel anti-mutant calreticulin monoclonal antibody, which has been shown to selectively inhibit the proliferation and differentiation of cells harboring mutant CALR, while not affecting wild type or normal healthy cells. On the right is a list of key updates across LIMBER that are expected this calendar year. Starting with ruxolitinib XR, we have a PDUFA date of March 23 this year, and the expected approval is an important step towards fixed-dose combinations with parsaclisib, zilurgisertib and our BET inhibitor. In terms of data, we expect pivotal Phase 3 data of ruxolitinib plus parsaclisib in suboptimal responders as well as more mature data sets of ruxolitinib with ALK2 and BET in the second half of this year. Depending on what we see with our ALK2 and BET combinations, we could potentially see the start of pivotal trials with one or both of these compounds. Early in the pipeline is our anti-mutant CALR monoclonal antibody, which will enter the clinic this year. With regards to graft versus host disease, we are expecting pivotal data midyear from AGAVE-201, a study evaluating axatilimab in third-line chronic graft versus host disease. Moving to the rest of our hematology and oncology portfolio, key data for the small molecule oral PD-L1 program were presented at the Society of Immunotherapy of Cancer Annual Meeting. Both 280 and 318 demonstrated clinical activity with tumor shrinkage and were generally well tolerated and we expect to share more mature data set in the second half of this year. In addition, we plan to initiate combination trials of 280 with adagrasib, CTLA-4 and an oral VEGF inhibitor in the first half of this year. INCB123667, our novel potent and selective oral small molecule inhibitor of CDK2 entered Phase 1 clinical development. Yes, we could see utility in cyclin E amplified or overexpressing cancers as well as in cancers that are resistant to CDK4/6 inhibitors. Now looking at our dermatology franchise on Slide 20. In July of last year, Opzelura gained its second indication in vitiligo. This was a huge achievement for the vitiligo community and people living with the disease. As we continue to maximize the potential with ruxolitinib cream, we initiated multiple Phase 2 studies in different conditions, including lichen planus, lichen sclerosis and hidradenitis suppurativa. In each of these diseases, there are no topical or oral therapies approved. We have many important milestones in dermatology upcoming in 2023, ruxolitinib cream, the CHMP opinion in vitiligo is currently on track for the first quarter of this year, while data from the Phase 3 vitiligo maintenance and withdrawal study and the Phase 3 pediatric AD study will be available in the first and second half, respectively. Turning to povorcitinib. We expect Phase 2 data in both vitiligo and prurigo nodularis later this year. And additionally, I want to highlight that later this week at the European Hidradenitis Suppurativa Foundation we have an oral presentation of the updated 52-week data from our Phase 2 study in HS, which should provide some additional insights into the durability of response with this agent. And lastly, auremolimab our newly acquired IL-15 receptor beta monoclonal antibody is expected to enter the clinic for vitiligo. As you can see on Slide 21, we're looking forward to another busy year with multiple regulatory and clinical updates. With that, I would like to turn the call over to Christiana for the financial update.

Thank you, Steven, and good morning, everyone. Our fourth quarter results reflect continued strong revenue growth with total product revenues of $764 million, representing an increase of 18% over the fourth quarter of 2021. Total product revenues are comprised of $647 million for Jakafi, $55 million for other hematology/oncology products and $61 million for Opzelura. Net product revenue growth was primarily driven by increases in Jakafi and Opzelura net revenues. Other hematology/oncology net revenues, which include revenues from Iclusig, Pemazyre, and Minjuvi were impacted by unfavorable changes in FX rates. On a constant currency basis, other hematology/oncology net product revenues grew by 23% over the prior year period. Total royalty revenues for the quarter were $132 million and are comprised of royalties from Novartis of $91 million for Jakavi and $4 million for Tabrecta and royalties from Lilly of $36 million for Olumiant. Jakavi and Olumiant royalties for the quarter were negatively impacted by FX headwinds, while Olumiant royalties were also impacted by a decrease in net product sales of Olumiant for use as a treatment for COVID-19. Excluding the impact of COVID-19 related sales and currency fluctuation, Olumiant royalties increased 23% compared to the prior year period. For the full year 2022, total net product revenues were $2.7 billion and total revenues were $3.4 billion, representing 18% and 14% year-over-year increase, respectively. Moving to Slide 25. Opzelura net product revenues for the quarter were $61 million, driven by robust demand and broadening payer access. As payers continue to add Opzelura to formularies and the share of covered claims increase, we continue to see improvement in the gross to net discount rate. The gross to net discount rate decreased from an average of 71% in the third quarter of 2022 to an average of 57% in the fourth quarter of this year, and we exited 2022 at a gross to net discount rate of 50%. While we will continue to work on reducing patient co-pay and in turn, improving gross to net, an average gross to net of 50% is a good working assumption for 2023 with a gross net discount in the first quarter of the year expected to be higher than subsequent quarters as plans reset patient deductibles at the beginning of the year. I would also like to take the opportunity to update you on the Opzelura prescriptions data provided by IQVIA. As you see on Slide 26, in Q4, we saw the gap between the actual number of total prescriptions and the number of prescriptions reported by IQVIA, narrowing. While the IQVIA data continues to overstate demand, this overstatement has been reduced to a level of 5% to 10%, which is within expectations for a newly launched product. In addition, it is important to note that IQVIA data reflects total demand, which includes both paid prescriptions and free drug. Going forward, free drug is expected to represent around 20% of total demand. When looking at IQVIA data, one would need to adjust for this overstatement as well as for free drug in order to get a better sense of paid demand. Moving on to Slide 27 and our operating expenses on a GAAP basis. Ongoing R&D expenses were $431 million for the fourth quarter and $1.5 billion for the full year 2022. Total R&D expenses, which include the upfront consideration of $70 million for our acquisition of Villaris were $501 million for the fourth quarter. For the full year 2022, total R&D expenses, which in addition to the Villaris upfront payment also include $56 million in other milestone payment, were $1.6 billion representing a 9% year-over-year increase. The increase was primarily due to the progression of our pipeline and was partially offset by lower upfront and milestone expenses in 2022. Total SG&A expenses were $273 million for the fourth quarter and $1 billion for the full year 2022. The year-over-year increase was driven by investments related to the new dermatology commercial organization in the U.S. and the related activities to support the launch of Opzelura in atopic dermatitis and vitiligo. Moving on to 2023. I will now discuss the key components of our guidance on a GAAP basis. For Jakafi, we expect net product revenues to be in the range of $2.53 billion to $2.63 billion, which at the midpoint represents an increase of approximately $170 million over 2022, driven by continued growth across all indications. We expect our gross to net adjustments for 2023 to be approximately 23%, reflecting expected continued growth in 340B volumes. As a reminder, the gross to net adjustment in the first quarter of the year is always higher relative to other quarter and previous quarter and subsequent quarters due to our share of the donut hole for Medicare participation. For other hematology/oncology products, which include Pemazyre in the U.S., EU, and Japan, and Iclusig and Minjuvi in Europe, we are expecting total net product revenues to be in the range of $215 million to $225 million. Turning to operating expenses on a GAAP basis, we expect COGS in a range of 7% to 8% of net product revenues, which is in line with 2022. R&D expenses are expected to be in the range of $1.61 billion to $1.65 billion, representing 3% year-over-year growth at the midpoint. SG&A expenses are expected to be in the range of $1.05 billion to $1.15 billion, primarily reflecting continued investment in Opzelura and the full year impact of the investment in the vitiligo indication. Operator, that concludes our prepared remarks. Please give your instructions and open the call for Q&A.

Congratulations on the quarter. Two questions for me. One is, I recognize you do not provide Opzelura guidance for this year. But can you provide any details on duration of treatment or number of tubes per year in average for an AD patient and how it might play out in vitiligo? And are there any inventory dynamics to highlight here? The second question is on the BET and ALK2 inhibitor combinations. Can you speak to your confidence in these programs? Now given the early data, do you think that represented proof of concept? And what do you want to see on the forward to move into later-stage studies?

Sure. Salveen, I'll answer the first part of the question and then pass it to Steven. Regarding the duration of therapy for Opzelura in vitiligo, it's still very early in the launch. The study continued for 52 weeks and beyond. We previously mentioned that we expect the average number of tubes per year for vitiligo patients to be around 10. As for the inventory at the end of the year, it is quite low, approximately two to three weeks of standard inventory that we typically maintain. Steven?

Thanks, Salveen. I'll just separate out both programs. So I'll start with the ALK2 program. We are very excited at the end of the year to receive towards the end of the year the update in terms of ALK2 showing increases in hemoglobin. Prior to that, we had seen proof of mechanism in terms of hepcidin decreases, but we hadn't seen hemoglobin move. And then both in the monotherapy escalation and in combination with RUX, we saw a few patients with quite substantial hemoglobin increases, which gave us a lot more confidence in that program going forward. For this year, in the beginning of the year, we'll continue to dose escalate. We still had relatively low doses, particularly in combination with RUX to get towards a maximum effect. We don't expect to see much in terms of tolerability, in terms of negative side effects at all. The populations that would be in scope for pivotal studies to begin with, the obvious one would be anemic patients with transfusion dependence to convert them to independents, but then standard anemic patients with anemia from the underlying MF and then potentially all comers. And the reason is the dual effect, so both to treat the underlying anemia from myelofibrosis itself and then to ameliorate or even reverse the ruxolitinib-induced anemia, which will allow you to maintain RUX dose intensity. And we know when we do that, that we increase the efficacy of ruxolitinib. So we're extremely encouraged by what we've seen with ALK2. We'll continue to dose escalate and then we'll make pivotal decisions on what population or populations to go after with their program towards the end of this year. In terms of the BET program, again, we know that pathway epigenetically is important in myelofibrosis. We see both spleen response as well as symptom responses. We also continue to dose escalate this year, particularly in combination with ruxolitinib. We'll continue to push the BET dose from 6 milligrams to 8 milligrams to 10 milligrams. We know that the on-target toxicity with BET will be thrombocytopenia. It's across the board with BET inhibitors. We've seen it with our own program, and that will be dose-limiting. The likely population there to go after the pivotal study, at least, to begin with because of that profile would be suboptimal responders. And just to note, the competition is doing the first-line study at the moment. So the suboptimal population, we think, is wide open to go after. And again, we'll determine that towards the end of this year.

I would like you to elaborate on the Jakafi guidance. It appears that at the midpoint of your range, you might anticipate slightly lower contributions from both demand growth and price growth. From my quick calculations, it seems that the gross to net will remain fairly stable. Could you discuss the assumptions behind this, particularly regarding demand across various indications and net pricing? Additionally, if the current market dynamics continue, could there be potential for an upside?

Brian, it's Barry. So thanks for the question. Yes, I mean, as you know, that Jakafi is really the #1 treatment for myelofibrosis, the #1 treatment for polycythemia vera in the second-line setting and for GVHD in both the acute and chronic steroid-refractory setting. Jakafi is the #1 drug. But in terms of our guidance, the appropriateness is we think it's perfectly appropriate for right now, given the fact that we'll have actually a third competitor in the middle of the year for MF, there's two competitors for GVHD now. If you remember last year, in terms of GVHD, we had a bolus of growth in the fourth quarter of 2021 as patients transitioned from our expanded access program, about more than 300 of them transferred from our expanded access program to commercial drug. So seeing that kind of growth again is not likely to happen this year, but we'll continue to see the drug grow quarter-over-quarter, year-over-year in terms of new patients, total patients in MF, PV, and GVHD. But again, the guidance at this point is appropriate.

Great. Looks like you hit the 50% exit rate on Opzelura gross-to-nets in the fourth quarter. Can you talk a little bit about how we should think about gross to nets in 2023 for that product and any quarter-to-quarter variability we should look out for?

This is Christiana. For the gross to net in 2023, I believe the 50% average rate for the year is a reasonable assumption. However, you will notice fluctuations between quarters, and I expect the rate in Q1 to exceed that 50% average and be higher than in other quarters. This is due to the reset of deductibles for patients at the beginning of the year, which means we have more costs to cover, thereby increasing the gross to net rate.

On Opzelura, will the split between vitiligo and AD influence what your gross to net will be for this year? And then secondly, longer term, do you expect any difference in compliance rates between patients on vitiligo versus AD?

So I can take the first part of the question. No, we don't expect any difference in gross to net between the two indications.

So in terms of difference between compliance rates, no, we don't expect difference. As I said before, in vitiligo, we believe that the average will be about 10 tubes per year. So obviously, these patients are staying on it for a long period of time, as long as 52 weeks and beyond. And in terms of AD, patients use it until their inflammation and itch is gone, then they generally will stop for a while. If their flare comes back, their itching comes back, their inflammation comes back, then they'll start using it again. So I believe they're compliant. It's just different diseases, obviously, some needing short-term use and some like vitiligo that are going to use it probably for a long period of time.

The two on dermatology from our side. First, for the Phase 3 data expected later this year for RUX cream in the pediatric AD population, what would you consider a strong outcome here? And how do you size the commercial opportunity with the pediatric population versus the adult population? And then my second question is on povorcitinib. For the data expected in the first half of this year with vitiligo, again, what would you consider a good outcome? And how do you envision povorcitinib being used if it’s potentially approved versus Opzelura?

Hi Vikram, it's Steven. The pediatric atopic dermatitis study focuses on children aged two to eleven, which represents about 2 million patients in the U.S. Regarding efficacy, we anticipate results similar to those in adults, as the disease's underlying mechanisms are consistent across age groups. Additionally, we do not foresee any unusual safety concerns, as there are specific monitoring protocols in place during this critical growth period. Our preclinical data, along with findings from oral RUX in pediatric patients, supports this. As for your second question about povorcitinib and vitiligo, while there is some overlap with the RUX cream population, povorcitinib targets patients with at least 8% body surface area involvement, while the current vitiligo label covers those with 10% or less, capturing around 80% of patients. The 8% threshold encompasses about 30% of vitiligo patients. Given the more severe cases involved, we anticipate a different tolerability profile that will be more acceptable to both patients and regulators. We expect substantial efficacy due to the drug's mechanism of action, treating it as an oral JAK inhibitor for inflammatory conditions and being mindful of safety aspects. Overall, we are optimistic about significant efficacy and will address safety labeling at a later stage.

Yes. So Steven mentioned the commercial opportunity for children that are younger than 12, about 2 million. So when we think about pediatric patients overall, the percentage of pediatric patients that have eczema or atopic dermatitis is greater than adults, but there's many, many more adults. So therefore, even at lower percentage, you end up with a higher number of patients that potentially have eczema. So we think it's an exciting opportunity. We also think it's just great for patients because we believe that Opzelura is going to improve the lives of some of these patients with eczema who are younger than 12.

Thank you for taking my question and congratulations on the quarter. I have questions regarding the survey results, particularly the doctor survey that discusses patient candidacy. Is the growth in what doctors are saying about patient candidacy being reflected in new patient starts, or is there a delay? Additionally, when comparing new prescriptions for atopic dermatitis versus vitiligo, are you observing the patient candidacy statistics being reflected? It appears there is more enthusiasm for vitiligo, especially since it is the only drug approved. I understand you do not provide guidance for Opzelura, but I was curious if there are any plans to offer visibility or guidance for Opzelura in the future.

Sure. Kripa, this is Barry. So again, in terms of patient candidacies or surveys that we do of dermatologists, of healthcare professionals who treat these diseases, we think it does rapidly turn into increased prescription volume. For vitiligo, it just may take a little bit longer because remember, we're encouraging patients to come back because now there is a treatment for vitiligo where there never was. So to go back and see their dermatologist so that might take a little longer period of times in patients who are actively being treated for eczema but aren't getting results that they expect. So is there more enthusiasm in vitiligo? I think there's enthusiasm for patients who are suffering with atopic dermatitis to use a drug that's as effective, particularly in terms of itch and inflammation as Opzelura. And, obviously, there's people who are very excited about using Opzelura for vitiligo and potentially changing how they feel potentially about themselves. In terms of the guidance, I'll turn it over to Christiana.

Sure. So Kripa, we would like to see a few more quarters of uptake before we provide any guidance on Opzelura, which would also include vitiligo and especially around vitiligo. As Barry indicated, we are looking at the inactive patient population and how quickly they will get activated and will come to seek treatment. So we would like to see that before we are in a position to provide any guidance on Opzelura.

Congrats on the quarter. And thanks for taking our questions. So for Opzelura, based on the press release numbers for total units and the Q4 net sales, we calculated a gross to net of 62% to 63%. Can you maybe help us understand what may account for the discrepancy between that and your Q4 57% gross to net number?

So the 57% is the average Q4 gross to net rate.

How is free drug accounted in that calculation?

Free drug is not part of the revenue calculation and is not included in the gross to net figure. Therefore, you should focus on paid demand and use the net price, which is approximately 2,000 gross price multiplied by one minus the 57% gross net discount.

Okay. And are you still comfortable with the 40% to 50% long-term guidance range? It sounds like in the near term it will be closer to 50%. Can you possibly narrow that guidance now?

Yes. So we'll continue to work on bringing down the co-pay, which over time, would continue to improve gross to net. Obviously, getting further improvements now is more difficult. That's why we are saying for 2023, a 50% average gross to net is a good assumption for the year.

Thank you. It's a good question. Mechanistically, as I was saying in my earlier remarks, it works through hepcidin inhibition, that is the main mediator, if you will, of anemia, of inflammation and chronic inflammation, which occurs in many chronic conditions. So there's potential across the board in some of those conditions including chronic renal failure. So we're starting some early work in some of these settings to see if there's potential there. We are encouraged by recent regulatory movement in the U.S. from the FDA in improving products to treat anemia in areas like chronic renal failure, which has been difficult in the past. So that may make us look a little further. But for all those indications and the look there, it's still very early days.

Thanks so much for taking my question and congrats on the progress. It's clear that there are really no supply issues for Opzelura, but maybe talk to me about kind of what the sales team is focusing on this year to accelerate growth even further? I mean, you had a good 2022. You are getting gross to net more normalized. What is your commercial organization focused on to get sales to the next level and ensure that you have the highest number of paid scripts over the year?

The sales team is consistently engaging with dermatologists. We have better access compared to other therapeutic areas. Their focus is on both atopic dermatitis and vitiligo. The recent launch of the vitiligo treatment has been thrilling, as it’s the only drug available for repigmentation in these patients. There are millions who could benefit from Opzelura for atopic dermatitis as well. The team aims to address itch and inflammation in AD while remaining committed to promoting Opzelura for vitiligo. They are dedicated to educating healthcare professionals about the expected progress over eight, 12, and 24 weeks to reinforce compliance and the importance of consistent use for significant repigmentation results. Additionally, they are ensuring that patients receive refills for atopic dermatitis to achieve complete disease relief and encourage them to return if flares occur. The sales team is enthusiastic about the potential in both atopic dermatitis and vitiligo markets.

Congrats on the quarter and thank you for the update. For the LIMBER program, can you talk about the differentiation of RUX plus parsaclisib versus RUX plus a BET inhibitor since they're both targeting suboptimal responders? And then what will you be looking for in the Phase 3 readout of RUX plus parsaclisib later this year? And how will that impact your overall strategy for the LIMBER program?

Thank you, it's Steven. The lumber program is critically important to us and to patients, and we are pleased with the progress, especially towards the end of last year in our combination work. Regarding your question about RUX plus parsaclisib, there are two pivotal studies currently underway. The first involves about 212 patients in a suboptimal study from which we expect to receive results this year. These patients have been on ruxolitinib for at least three months with stable dosing for at least eight weeks and are experiencing inadequate responses regarding spleen size or symptoms. We presented the final Phase 2 data at ASH last year, showing that the response in symptoms was quantitatively greater than the spleen response, which is very encouraging. The safety profile in myelofibrosis looks quite clean so far with extended follow-up. This differs from what is observed in lymphoma likely due to the underlying disease being distinct, as there are no long-term B cell suppressive therapies in myelofibrosis. Additionally, when combined with RUX, it may reduce some of the side effects. We are optimistic about this profile. This randomized study will report findings this year in suboptimal responders, and if we can replicate the Phase 2 data, we believe the Phase 3 will be positive and is designed to succeed. It will specifically address those patients who have been on RUX for a few months, maintained stable doses, and are not seeing benefits, which will guide our indication in this area.

So firstly, on the covered prescription rate, you mentioned you anticipate about 20% free drug. So that would indicate you're at 70% covered at this point in time or 71%. How quickly do you expect to get to that incremental difference? And is it consistent among vitiligo and atopic dermatitis? And secondarily, can you talk a little bit about the expectations for the rollout of RUX QD and how we should think about how that will affect Jakafi?

Sure. The covered rate for commercial patients who have access to commercial drugs through their insurance is currently around 84%. The overall coverage is about 90%. However, there's a discrepancy due to a lag in establishing utilization criteria. We are pleased with the coverage achieved so far, particularly with Medicaid, which is available in all 50 states. Commercial insurance coverage continues to improve, though there are still areas needing enhancement, such as co-pay and utilization criteria that may not be ideal yet. For atopic dermatitis and vitiligo, the commercial coverage is pretty much the same, with Medicaid, VA, and DoD coverage also being similar. There are some slight shortcomings in vitiligo coverage, but it is getting better daily, and the issues related to Opzelura and vitiligo prescriptions are minimal compared to when we launched atopic dermatitis. We have not encountered many problems in this area. Regarding RUX QD, we previously mentioned that the PDUFA date is in March, and we plan to launch a few weeks later in April. When we receive approval, we'll provide more details about the rollout and positioning of RUX QD. We are very excited about this launch as it offers greater convenience for patients, which may enhance compliance, leading to improved outcomes for some patients. We are looking forward to it.

Thanks for taking the questions and congratulations on a great quarter. Just looking at the GVHD market, can you talk a little bit about the split between chronic versus acute? And how is the drug being used, especially in comparison to, let's say, Ibrutinib? And I guess I'm curious, where does axatilimab fit into this program, especially after the pivotal data expected in mid '23? And if I can just squeeze one extra one. Can you just give us some thoughts on Tafa and how you're thinking about the reduced expectations for 2023, at least in the U.S.?

Sure. This is Barry. In terms of the split between acute and chronic, we have approximately 1,500 patients with steroid-refractory acute GVHD. Our drug is the leading choice in that category, but the patient numbers are significantly lower and they are treated for shorter durations, usually around six months for acute GVHD. On the other hand, there are about 14,000 patients with chronic GVHD, around 7,500 of whom are steroid-refractory. Most of our growth is driven by chronic GVHD and the ongoing treatment for it. Generally, the claims we receive don't differentiate between acute and chronic, but we believe that the overwhelming majority of prescriptions are now for chronic GVHD. Moreover, the physician base for chronic GVHD is considerably larger than that for acute. Regarding Ibrutinib and Rezurock, these are typically used in the third-line setting. Current data suggests that Ibrutinib use is decreasing, while Rezurock is utilized as a third-line option following Jakafi. We see a strong opportunity for axatilimab, and the success of Rezurock reinforces our confidence in axatilimab’s prospects. It is a distinctly different drug, and we have received positive feedback from bone marrow transplant doctors treating GVHD, who are eagerly anticipating its availability. As for tafa in combination with len, it represents an excellent option in the second-line setting, with overall response rates and complete response rates around 40%, providing a non-chemotherapy alternative. However, the landscape for diffuse large B-cell lymphoma has evolved significantly, with heightened competition due to CAR-T therapies entering the second-line market. This environment presents challenges for us, although the product has the potential for complete responses and long-lasting effects. We are actively working to broaden the use of this drug because we believe it can greatly benefit patients. The increasing competition in the second-line setting remains a hurdle for us.

One for me on Opzelura. I know a determinant of the ultimate size of the vitiligo opportunity is going to be activation of patients who aren't currently seeking treatment. I know it's clearly early days in the launch, but just wondering if there's anything you can say about how patient activation is tracking against your expectations? Or is this not really expected to be a driver until vitiligo specific DTC is underway? And then just a separate question on the other hem/onc franchise, just that 2023 guidance range seems to imply somewhat limited growth compared to '22. So just could you expand on the growth areas for that franchise for the year? And any sort of pushes and pulls you considered in the 2023 guidance range?

Okay. So I'll start, and then I'll hand off to Christiana, I guess. So in terms of patient activation for vitiligo, I think it's happening already. We haven't started linear and nonlinear TV commercials, direct-to-consumer TV commercials for vitiligo yet. That will start very soon. But patients are being activated. There's direct-to-consumer activities going on online, on social media, on Internet searches. We work very closely with the vitiligo patient advocacy community. We work with healthcare professionals and even do live programming between healthcare professionals and patients. So that is occurring now, and it will continue to a much greater degree in the future. I think you can see by our presentations, there's lots of excitement for patients who have gotten very good experience using the drug and are proud to share that. So that helps a great deal in informing patients who may actually benefit from this drug. And in terms of guidance, perhaps, I'll hand it over to Christiana.

So in terms of the guidance for other hem/onc, the guidance range that we have provided is $215 million to $225 million with primary driver being Minjuvi, of the increase, yes.

Barry, you cited additional competition in MF this year as a reason for the appropriateness of your guidance today. But I guess, I don't really expect those labels to directly compete with Jakafi. So I wonder if you're starting to see maybe patients who were suboptimal responders switching a little earlier or now having another option to switch off of Jakafi than they would have prior. If that is kind of the impact you're talking about?

Sure, Matt. While we don't have definitive information, we believe that the two currently available drugs, fedratinib and pacritinib, are primarily used in the second-line treatment. It's difficult for us to assess any first-line use. Looking ahead, momelotinib has a PDUFA date in June, but we are uncertain about GSK's plans for that product or its specific indications. However, we believe patients will continue to benefit from Jakafi due to its advantages in overall survival, significant symptom improvement, and spleen volume reduction. We expect this trend to persist, with the other drugs being utilized in second-line treatment. Nonetheless, we are unsure about how everything will unfold, which is reflected in our guidance.

Thank you all for participating in the call today and for your questions. The IR team will be available for the rest of the day for follow-up. Thank you, and goodbye.