Incyte Corp (INCY) — Q2 2023 Earnings Call Transcript

Thank you, Kevin. Good morning and welcome to Incyte Second Quarter 2023 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 Herve, Pablo, Barry, Steven, and Christiana, who will deliver our prepared remarks and participate in 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 Herve.

Thank you, Greg, and good morning, everyone. So, we had another quarter of strong performance with product revenues growing 25% year-over-year and driven by Jakafi, Opzelura, and launches in Europe. Jakafi net product revenue grew 14% compared to the second quarter of 2022. For Opzelura, the growth trajectory continues with net product revenues in the second quarter of $80 million, driven by new patient flow and growth in the market. Additionally, the launch in Europe is underway and Opzelura is now available to patients in Germany and Austria. However, other hematology and oncology net product revenues were $64 million for the quarter, up 30% year-over-year, driven by the growth of Pemazyre and Minjuvi in the ex-US market. Now turning to Slide 5. We continue to execute on our development efforts. Recently, we announced positive top line results from two of our high potential programs. The TRuE-AD3 study evaluating ruxolitinib cream in pediatric atopic dermatitis and the AGAVE-201 study evaluating axatilimab in chronic GVHD met their respective primary endpoint. Steven will discuss these results in more detail during his prepared remarks, as well as provide updates on the important progress we made across many of our high-potential program as shown at the bottom of the slide. We also strengthened our research and development organization by appointing Pablo Cagnoni as President and Head of R&D. In this position and as a member of the executive team, Pablo will lead Incyte’s R&D activities. This new role aligns chemistry, biology, and early and late-stage clinical development with the goal of maximizing speed and productivity in our research and development efforts. I will now turn the call over to Pablo for a few words.

Thank you, Herve. I'm thrilled to join the team at Incyte, a company with such an impressive history of success and who has redefined the standard-of-care in myeloproliferative neoplasms, graft-versus-host disease, and vitiligo. Since joining just a few weeks ago, I've spent time with our teams and I'm even more enthusiastic about the capabilities of our organization and about the quality of our science. We're prosecuting a broad range of biology with a diversity of modalities. And I look forward to working with them to continue to deliver major advances across our portfolio in order to make a meaningful difference for patients. Herve?

Thank you, Pablo. And with that, I would like to pass the call to Barry for a commercial update.

Thank you, Herve. Good morning, everyone. Starting with Jakafi on Slide 7. Net product revenues for the quarter were $682 million, up 14% year-over-year, driven by the continued growth in patient demand across all indications. Total patient demand grew 5% year-over-year, while new patient starts, a good indicator for future growth, were up 9% year-over-year. Given the strong underlying demand for Jakafi, we are raising the bottom end of our full-year 2023 revenue guidance to a new range of $2.58 billion to $2.63 billion. Turning to Opzelura on Slide 8. The launch continues to be strong and is gaining positive momentum with both physicians and patients. The rapid adoption of Opzelura is driven by its compelling product profile and its ability to address significant unmet needs in both atopic dermatitis and vitiligo. Opzelura net product revenues in the quarter were $80 million, up 42% compared to the prior quarter. U.S. patient demand increased during the quarter with total prescriptions growing 16% compared to last quarter and refills growing by 23%. The monthly prescription trend, as shown on the right, demonstrates the continued growth of Opzelura, which is coming from both atopic dermatitis and vitiligo. In atopic dermatitis, growth was primarily due to new patient flow driven by Opzelura’s efficacy and impact on inflammation and itch. In vitiligo, where Opzelura is the only approved treatment for repigmentation, growth was driven largely by refills and our educational and awareness initiatives. We are very optimistic about the long-term potential of Opzelura as we continue to see strong uptake and positive momentum. On Slide 9, Minjuvi net product revenue in the U.S. for the quarter was $24 million, up 2% year-over-year, and was driven by continued growth in community accounts. Minjuvi net product revenues outside of the U.S. were $13 million, up 198% year-over-year and includes $6 million of previously deferred revenue related to the early access program in France, which ended in June. Pemazyre net product revenue grew to $22 million, a 14% increase year-over-year with $5 million coming from outside the U.S. where the launch is ongoing in 10 key markets in Europe. With that, I'll turn the call over to Steven.

Thank you, Barry. Starting on Slide 11. As Herve mentioned, we have two exciting program updates we want to highlight from this quarter. First, for ruxolitinib cream, the primary endpoint was met in the Phase 3 TRuE-AD3 trial in pediatric atopic dermatitis patients aged two to 12. The top line results showed that significantly more patients achieved Investigators' Global Assessment Treatment Score or IGATS with ruxolitinib cream 0.75% and 1.5% compared to the vehicle control. No new safety signals were observed and the overall safety profile is consistent with previously reported data. The long-term safety portion of the trial is ongoing, and data will be submitted for presentation at an upcoming scientific meeting. We also plan to discuss these data with regulatory agencies, and we anticipate a submission in the first quarter of 2024. We are excited about the potential relief ruxolitinib cream can bring to the roughly 2 million pediatric atopic dermatitis patients in the United States. Moving to Slide 12. In partnership with Syndax, the AGAVE-201 study, a global pivotal trial evaluating axatilimab in patients with chronic graft versus host disease after two or more prior therapies, met its primary endpoint of overall response rate across all three treatment cohorts with the 0.3 milligram per kilogram every two week dose achieving a 74% overall response rate. In the 0.3 milligram per-kilogram cohort, 60% of responders maintained their response at one year, and 55% of patients achieved at least a 7 point decrease in their modified Lee symptom scale indicating that responses were both durable and included symptom improvements. Axatilimab was well tolerated, and the most common adverse events were consistent with on-target effects. The full dataset is planned for presentation at a scientific meeting later this year with a potential BLA submission by year end 2023. We are excited about the potential of axatilimab in chronic graft versus host disease in this heavily pretreated and severe patient population. A Phase 1/2 trial of axatilimab in combination with ruxolitinib is also being planned. Moving to Slide 13, and updates on our broader dermatology pipeline. For Opzelura, in addition to the positive top line pediatric AD data, three Phase 2 studies for lichen planus, lichen sclerosus, and hidradenitis suppurativa have completed enrollment. For Povorcitinib, the Phase 2 study in prurigo nodularis has completed enrollment, and we expect to have data in this indication later this year. Additionally, we previously announced the expansion of Povorcitinib development into inflammatory and autoimmune diseases beyond dermatology, and have now initiated two Phase 2 trials in asthma and chronic spontaneous urticaria. On Slide 14, I want to provide a little more detail on our studies in asthma and chronic spontaneous urticaria. Asthma is a chronic inflammatory disease with two endotypes. Type 2 eosinophilic asthma, the most common type, is primarily driven by TH2 cytokines, whereas non-Type 2 asthma is characterized by a neutrophilic response. Many asthma patients have disease progression despite therapy with inhalers. Povorcitinib appears to have efficacy in both Type 2 and non-Type 2 endotypes. In preclinical data, Povorcitinib results in a reduction of eosinophil activation and may potentially reduce neutrophil activation as well. The Phase 2 study has been evaluated in moderate to severe uncontrolled Type 2 and non-Type 2 asthmatic patients. Unlike monoclonal antibodies that target a single cytokine, Povorcitinib inhibits the actions of multiple cytokines, potentially providing superior efficacy in both endotypes. CSU is a mast-cell driven disease, presenting with hives and severe chronic itch. Overactivation of dermal mast cells and basophils results in increased serum levels of TH1, TH2, and TH17 related cytokines. We know JAK inhibition can modulate mast-cell activation, including degranulation and cytokine production, both of which are drivers of chronic spontaneous urticaria. The Phase 2 study has been evaluated in patients who are inadequately controlled or progressed on second-generation antihistamines. Moving to hematology and oncology, we achieved multiple clinical milestones across our high potential portfolio during the second quarter. We continue to make progress in myeloproliferative neoplasms or MPNs where we presented updated clinical data at ASCO for our OP-2 and BET program. We also initiated a Phase 1 study of INCA033989, our mutant CALR antibody, and as previously discussed, axatilimab met the primary endpoint in chronic graft versus host disease. For oncology, both of the Phase 3 studies evaluating Tafasitamab in first line diffuse large B-cell lymphoma and in relapsed or refractory follicular and marginal zone lymphoma are fully enrolled. The small molecule oral PD-L1 program continues to advance with multiple new studies initiated. Turning to Slide 16 and an update on our small molecule oral PD-L1 program. Immune checkpoint inhibitors have transformed cancer treatment for patients. Despite the remarkable clinical benefits, intravenous formulations have disadvantages and there is ample opportunity for innovation and improved outcomes in this space. As the first company to demonstrate clinical activity with an orally available PD-L1 targeted agent, we have a unique opportunity for differentiation. As an oral small molecule, INCB99280 has a short half-life, which can reduce the burden of managing immune-related toxicities and provide a switch-off option if needed, which may offer improved overall safety, especially when combined with other agents. Additionally, the convenience of at-home oral administration is often preferred by patients and may offer the potential for improved quality of life. On the right, you can see the current studies of INCB99280. We've initiated monotherapy Phase 2 studies in both checkpoint inhibitor-naïve patients and in cutaneous squamous cell carcinoma. We also initiated two Phase 1/2 combination studies with axitinib and ipilimumab. A third Phase 1/2 study in combination with adagrasib is in preparation. We also announced last night that in partnership with Replimune, we are starting a neoadjuvant study to evaluate 280 in combination with RP1, a tumor-derived oncolytic immunotherapy in patients with cutaneous squamous cell carcinoma. RP1 is Replimune's lead oncolytic immunotherapy product and is based on a proprietary new strain of herpes simplex virus engineered for tumor-selective replication and is genetically armed with the fusogenic protein and GMCSF. RP1 has already demonstrated substantial activity in cutaneous squamous cell carcinoma. At ASCO, we presented data for zilurgisertib, our ALK2 inhibitor in patients with myelofibrosis. Initial data from 36 patients demonstrated early signs of clinical activity through hepcidin reduction and anemia response in monotherapy and in combination with ruxolitinib. Zilurgisertib was well tolerated with a favorable safety profile allowing for continued dose escalation. We've added an additional treatment group in first-line JAK-naïve myelofibrosis patients with anemia and we plan to have updated data later this year. Additional data presented at ASCO for our BET inhibitor, INCB57643 demonstrate improvements in spleen volume and symptoms in both the monotherapy arm and in combination with ruxolitinib. It was generally well-tolerated with two dose-limiting toxicities observed in the higher 12 milligram once daily monotherapy arm. We believe we have an active compound with encouraging early data. Dose-finding work is ongoing with 10 milligrams once daily as monotherapy, as well as continued dose escalation in the combination arm. Turning to Slide 19, we continue to make progress in other development programs. During the quarter, INCA33890, a TGFβR2 by PD-1 bi-specific antibody entered the clinic and a Phase 1 study was initiated. Additionally, our emolimab, our anti IL-15Rβ antibody received IND clearance and we plan for it to enter the clinic later this year. Retifanlimab, which was recently approved in Merkel cell carcinoma, has completed enrollment in the Phase 3 non-small cell lung cancer study and in the squamous cell anal carcinoma study. Finally, on Slide 20, we have a number of upcoming data readouts and other exciting milestones expected, and we look forward to sharing additional details throughout the remainder of this year. With that, I'd like to turn the call over to Christiana for the financial update.

Thank you, Steven, and good morning, everyone. Q2 was a very strong quarter with total product revenues increasing 25% year-over-year to $827 million, driven by the strong performance of Jakafi and Opzelura. Jakafi net product revenues for the second quarter were $682 million, representing a 14% year-over-year increase, driven primarily by continued growth in patient demand across all indications and an increase in channel inventory. At the end of Q2, channel inventory had recovered from the depressed Q1 levels and was towards the high end of the normal range. The increase in inventory represented around $35 million in net product revenues. Opzelura net product revenues for the second quarter were $80 million, representing a 384% increase year-over-year, driven by increased patient demand and expanded coverage. Finally, other dermatology/oncology net product revenues were $64 million, representing a 30% increase compared to the second quarter of 2022, driven by patient demand and the recognition of $6 million of previously deferred Minjuvi revenue related to the early access program in France, which ended in June. Turning to royalty revenues, total royalty revenues for the quarter were $128 million and are primarily comprised of royalties from Novartis of $90 million for Jakafi and $5 million for Tabrecta, and royalties from Lilly of $32 million for Olumiant. Jakafi and Olumiant royalties for the quarter were negatively impacted by FX headwinds. Turning now to Slide 24 and the performance of Opzelura. The launch of Opzelura has been very strong, with 2023 year-to-date net sales of $137 million. Since the launch of vitiligo, Opzelura net product revenues have grown at an average quarterly rate of 28%. Net product revenues grew 42% compared to last quarter, primarily driven by demand and the normalization of the typical Q1 dynamics. Moving on to Slide 25 and our operating expenses on a GAAP basis. Total R&D expenses were $401 million for the second quarter, representing a 15% year-over-year growth, driven primarily by the progression of our pipeline, including the expansion of the clinical development program evaluating ruxolitinib cream in additional indications and the progression of povorcitinib into pivotal studies. The SG&A expenses were $284 million for the second quarter, representing a 12% year-over-year growth, driven primarily by promotional activities launched at the beginning of the year, to support Opzelura and vitiligo and the timing of certain other expenses. Moving on to our guidance for 2023, as a result of Jakafi's strong demand growth, we are raising again the bottom end of our full year Jakafi guidance to a new range of $2.58 billion to $2.63 billion. We are reaffirming our other hematology oncology revenue, COGS, R&D, and SG&A guidance for the year. Operator, that concludes our prepared remarks. Please give your instructions and open the call for Q&A.

Hey, I'm on for Brian. Thanks for taking my question. I guess I had one on MS development in the lumber program. Given the high bar that Jakafi sets and the challenges exemplified by difficulties one of the competitor drugs recently had in hitting on the symptom score. I guess, how's this shaping your thinking about going to the front line or the second line with the BET inhibitor and just the positioning of these molecules going forward? Thanks.

Thank you for the question. It's Steven. I recognize the impressive activity of ruxolitinib in terms of both spleen responses and symptom improvement. As you mentioned, it's a challenging benchmark to surpass. We need to be cautious in our study designs and ensure we maintain appropriate JAK inhibitor dose intensity moving forward. Concerning our combination programs, we are observing promising early results related to hepcidin reduction and positive hemoglobin responses. Therefore, we are contemplating first-line treatments that aim to prevent anemia while maximizing JAK inhibition benefits on the spleen and symptoms. We are hopeful about finishing the dose escalation and outlining our strategic direction in the upcoming year. The CALR antibody is also showing potential to significantly alter the disease course for patients with CALR mutations. That's the current status of the program. Thank you.

Thank you.

Thank you so much for taking my question. I have a question about the axatilimab lab data from the Phase 2 trial you reported recently. Now the big question we've been getting is around the unusual dose response. So, we've heard that this could be because of potential impact of safety and response rates. I know it's not been too many days since you reported the data, but it's been a few days since you've had to digest the data. Wondering if you have a sense of what it might take to understand what's going on there? And more importantly, how this might affect regulatory review? And then for Minjuvi, as you continue to work through reimbursement in the EU, are you seeing a difference in how it's being used in U.S. versus EU? Thank you.

Perfect, it’s Steven. I'll start off with your axatilimab question. So the AGAVE-201 study had three doses and a schedule difference as well. So the first two are 0.3 milligram per kilogram every two weeks, 1 milligram per kilogram every two weeks, and the third dose level was 3 milligram per kilogram every four weeks. We had excellent activity across all dose levels in patients who had a median of four prior therapies. We believe the response shows consistency, but we do need to continue to monitor tolerability, especially regarding liver impacts found at higher doses. It’s likely we will discuss with regulators the appropriate dosage leading to a BLA submission by the end of this year. I'll turn it over to Barry for your second question.

I'll take it. That's on Minjuvi in Europe. The profile of patients we are seeing using Minjuvi in Europe is similar to the U.S. However, the extent to which CAR-T is used in different European countries varies. The overall volumes of patients that end up being eligible for Minjuvi is larger in Europe. We've seen a faster adoption curve in Europe due to timely reimbursement approvals in countries like Germany, Italy, and Spain. We continue to work in France and the rest of Europe to ensure full access.

Great. That's very helpful.

Thank you.

Hi. Good morning. Thank you for taking the questions. First, just on Opzelura. Could you help us understand the gross to net trends during the quarter? And also just the mix you're seeing between atopic dermatitis and vitiligo? I think it was 30% of scripts were thought to be for vitiligo last quarter. Just is that consistent now that we're into the second half of the year? And I guess what are you seeing in terms of persistence and refill rates in vitiligo? And then secondly, just a question on the pipeline, just on the Replimune agreement announced yesterday. Could you talk about the rationale for entering that agreement now? What aspects of RP1's clinical data and CSCC or other derm oncology indications give you confidence in evaluating the 99280 combo in new adjuvant CSCC? And just help us understand the scope of that trial expected to start early in the year. Is that going to have registrational potential? Thank you.

Hi, Allison. It's Christiana. Let me take the first part of your Opzelura question and then I will turn it to Barry to discuss the mix. So in terms of the gross to net, in Q2 the average gross to net discount was 55%. So that was down from 60% in Q1. As we're expecting, Q1 has the highest gross to net given the higher co-pays and deductibles at the end of the year that we have to pay down and that then comes down through the year. So we are at a 55% average gross to net in Q2. In terms of dynamics, one thing that we saw in Q1 and we continue to see in Q2 was an increase in Medicaid utilization. And that has continued in Q2 with Medicaid increasing as a percent of the total payer mix.

So, Allison, it's Barry. So as far as your other questions, vitiligo now represents about 35% of total prescriptions. In terms of refills, for atopic dermatitis, I think we've said before that we expect two to three refills – two to three tubes per patient, and that's where we are now with AD. We're over two tubes per patient. For vitiligo, we don't have enough time yet. Most of the vitiligo coming on, as you can imagine, are new patients and we need more time to reach the average number of refills. As we've said in the past, we expect the average to be around 10 tubes per year, and we think we're progressing towards that. I'll turn it over to Steven for a Replimune question.

Thanks, Barry. In terms of cutaneous squamous cell carcinoma, it's an entity not well captured by cancer statistics just because of variability in treatment. However, it could be quite common, with substantial morbidity. For 280 itself, we have initiated studies on clinicaltrials.gov that are doing some dose-ranging work and could potentially serve for registration depending on the outcomes. Why Replimune? They have demonstrated outstanding efficacy in cutaneous squamous cell carcinoma with favorable response rates, making this an exciting potential direction for us. This is a proof of concept study, and we will determine a registration path afterwards.

Thank you.

Hi, good morning. Thanks for taking our questions. So we had two, both on Jakafi. So first, could you comment on whether there were any outsized or large inventory purchases that contributed to Jakafi's 2Q sales base? And then secondly, could you remind us where your dialogue stands with the FDA on QD RUX and just what the next steps are for moving this program forward? Thanks.

Hi, Vikram. It's Christiana. So first of all, in terms of your inventory question. As you may recall, inventory at the end of Q1 was below the low end of the normal range and that was because of the timing of an order. What we saw in Q2 was an increase in inventory that brought inventory back within the normal range and, I would say, towards the higher end of the range. The increase in inventory represented around $35 million in net sales. Let me turn it to Barry for the second part of the question.

Thank you, Christiana. So Vikram, in terms of RUX XR, just to remind you, the CRL from the FDA was a concern around concentration at steady state, not area under the curve and not peak concentration, resulting in a potential theoretical concern in terms of efficacy. There was a 24% lower concentration when you compare it to the immediate-release formulation. In terms of the go forward, there’s potential for a quicker approach involving modeling work we are currently doing, and we need to discuss with the regulatory agency. It's early to provide you regulatory timing, but both efforts are underway.

Got it. Thank you.

Good morning. Thanks for taking my question. You will share more combo data on the Jakafi ALK2 and BET combo in the second half, but in the context of where QD stands and the overall combination strategy here, can you just help us understand what your thinking is and how this could play out from a life cycle management standpoint?

Both BET and ALK2 are progressing well. BET shows clear activity with monotherapy and in combination. We are working on declaring the dosage for registration intent and monitoring the competitive space. ALK2 has shown excellent tolerability, allowing for continued dose escalation and potentially the capability to maintain JAK dose intensity in treatment paradigms. We are also working on fixed-dose combinations for both, which are not impacted by the CRL. We intend to complete efforts before Jakafi's exploration ends. Thanks.

Just a follow-up here? How does CALR and CK0804 factor into this strategy?

CALR is an oncogenic driver impacting 30% of myelofibrosis and is exclusive to other mutations. If it's successful, it could eliminate the malignant clone, providing significant treatment paradigm shifts. As for Cellenkos’ 0804, it's an early-stage effort targeting T-reg cells influencing myelofibrosis. We’ll have more data later this year.

Hi there. This is Conor MacKay on for Evan. Thanks for taking our questions. Congrats on the quarter. So you noted in your press release this morning increased demand for Opzelura and I'm just wondering, now that we're a bit further into the launch in vitiligo. Could you just comment on if you're seeing any previously inactive patients or patients who had stopped seeking treatment previously starting to come on to Opzelura? Thank you.

Hi, Conor. It's Barry. So we obviously have patients that have been seeking treatment all along for their vitiligo. And then, new patients that learned about Opzelura and go in to see their dermatologists. I can't give you any numbers at all about the number of patients who were inactive. But we do want to identify patients who want to have their vitiligo treated, knowing that there is now a treatment available for the first time that can actually help them to repigment their skin.

Yes. Thank you.

Hey, congrats on the quarter and thank you for taking the question. Can you talk about the pace of Opzelura uptake in Europe versus the U.S.? And any comments you could share on the momentum of Opzelura growth and when you might provide specific revenue guidance on Opzelura? Thank you.

I can take the European part of this today. So the approval and the launch in Germany and Austria took place at the end of the quarter. It was in the last days of June. So we are in the process. Now we have 1.5 months. We see a good uptake. In fact, we see adoption in Germany, where it's obviously the most important market, and it will continue to be the most important for the year. I mean, the more significant reimbursement is anticipated to take almost that long to be effective in other countries in Europe. The label in Europe is excellent. In fact, it has no equivalent of a Black Box in Europe. The media impact of the approval has been very visible across Europe. We have a lot of demand, and we are optimistic that it will be a good product for Incyte.

Regarding guidance for Opzelura, we look to see a few more quarters of uptake and how active vitiligo patients enter therapy. We will await more information on refills before we can provide guidance.

Great. Thank you for taking the questions.

Hi, this is Mara Goldstein from Mizuho Securities. Thank you for taking our question. First, regarding Opzelura and the free drug program along with the IQVIA projections, are you observing any differences between atopic dermatitis and vitiligo? Can you also comment on the rates moving forward for the remainder of 2023? Additionally, concerning axatilimab, could you explain how Incyte and Syndax are coordinating responsibilities for the upcoming BLA filing and potential commercialization? Thank you.

So Jerry, for Opzelura for the free drug program, we don't really see any difference between atopic dermatitis and vitiligo. Obviously, both are on Opzelura and a growing number of patients is on Opzelura.

In terms of axatilimab, Incyte will lead the filing activities, with Syndax appropriately assisting. On commercialization, in the U.S., it will be co-commercialization, with Incyte booking revenue and Syndax having the option for up to 30% of field force involvement. Outside the U.S., it will be a license arrangement with royalties paid to Syndax. We will prosecute all regulatory and commercialization activities for axatilimab.

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.