Analyst Conference Summary

biotechnology

conference date: May 5, 2020 @ 5:00 AM Pacific Time
for quarter ending: March 31, 2020 (Q1, first quarter 2020)

Forward-looking statements

Overview: Strong revenue growth an upfront consideration of $805 million for the collaborative agreement with MorphoSys was included in R&D expense, leading to large GAAP and non-GAAP net losses.

Basic data (GAAP):

Revenue was $569 million, down 2% sequentially from $579 million, and up 14% from $498 million in the year-earlier period.

Net income was negative $721 million, down sequentially from $111 million, and down % from $102 million year-earlier.

Diluted EPS was negative $3.33, down sequentially from $0.51, and down from $0.47 year-earlier.

Guidance:

Reaffirmed earlier, including revenue between $1.88 and $1.95 billion.

Conference Highlights:

Hervé Hoppenot, Incyte's CEO, said "Our strong first quarter results highlight continued revenue momentum, led by robust demand across all three indications for Jakafi (ruxolitinib)... We were very pleased to announce the FDA approval of Pemazyre (pemigatinib), the first of three potential product approvals that we expect to announce in 2020. The FDA review of the capmatinib NDA and tafasitamab BLA are proceeding as expected and, following positive results from our Phase 3 TRuE-AD development program in atopic dermatitis, we are also on track to submit the NDA for ruxolitinib cream at the end of 2020, all of which positions us for what I expect to be a transformational year."

The increase in expense and drop in both GAAP and non-GAAP net income and EPS were primarily due to upfront consideration of $805 million related to Incyte's collaborative agreement with MorphoSys.

Managing well through the COVID-19 pandemic, but might be some slowed enrollment in clinical trials, and other effects. Not seeing any change in clinical timelines yet. Looking at ruxolitinib as a potential as a therapy for the cytokine storms related to the virus. Lilly is looking at Baricitinib as part of its program with the NIAID.

On January 28, 2020, announced the primary endpoint was met in the Phase 3 trial of ruxolitinib cream for the treatment of atopic dermatitis. Expects the other Phase 3 trial results in Q1 2020, with an NDA in 2H 2020. In Q3 2019 received positive results from Phase 3 trials of ruxolitinib versus best available therapy in steroid-refractory acute GVHD (REACH2). Data from steroid-refractory chronic (REACH3) GVHD trial currently expected to be available in 2H 2020.

Pemazyre (Pemigatinib, INCB54828) for cholangiocarcinoma was approved by the FDA in April 2020. Also under review in Europe. It is a selective fibroblast growth factor receptor (FGFR) inhibitor, for the treatment of adults with previously treated, unresectable locally advanced or metastatic cholangiocarcinoma with an FGFR2 fusion or other rearrangement as detected by an FDA-approved test. Bladder cancer data presented at ESMO showed promising efficacy; now in Phase 3. Incyte initiated a pivotal tumor-agnostic trial evaluating pemigatinib in patients with driver-activations of FGF/FGFR in Q3 2019.

The collaboration and license agreement with MorphoSys for the development and commercialization of tafasitamab became effective in March 2020. In February, the FDA granted Priority Review for tafasitamab in combination with lenalidomide for the treatment of relapsed or refractory diffuse large B-cell lymphoma (r/r DLBCL), and set a PDUFA goal date of August 30, 2020.

Capmatinib was granted Priority Review in metastatic NSCLC. Worldwide rights are licensed to Novartis. An FDA decision is expected before the end of 2020.

Jakafi royalty revenue is from sales by Novartis outside the U.S.

Non-GAAP numbers: Net income negative $619 million, down sequentially from $142 million, and down from $135 million year-earlier. Diluted EPS negative $2.86, down sequentially from $0.65, and down from $0.62 year-earlier.

Cash and equivalents ended at $1.30 billion, down sequentially from $2.1 billion. Debt $18 million in convertible notes. There is a $275 million acquisition-related contingent consideration liability. Cash outflow in Q2 was mainly due to the MorphoSys collaboration.

Tafasitamab for DLBCL MAA submission expected in 1H 2020, with FDA decision due 2H 2020. This is a collaboration with MorphoSys. In US would split profits 50-50; ex US Incyte to commercialize with tiered royalties to MorphoSys. Will also pursue in CLL and other non-Hodgkin's lymphomas. Closing requires anti-trust approvals.

On January 27, 2020, Eli Lilly (LLY) and Incyte announced that baricitinib met the primary endpoint in BREEZE-AD4, an investigational Phase 3, randomized, placebo-controlled study evaluating the safety and efficacy of baricitinib in combination with topical corticosteroids (TCS) for the treatment of adult patients with moderate to severe atopic dermatitis (AD)

The LIMBER program (Leadership In MPNs BEyond Ruxolitinib), a key development priority, is evaluating multiple monotherapy and combination strategies to deliver improved therapies for patients with myeloproliferative neoplasms. The program has three key areas of focus: new formulations of ruxolitinib; JAK inhibitor-based combinations; and new targets beyond JAK inhibition.

A once-a-day formulation of ruxolitinib is being developed and evaluated in clinical studies. Following positive proof-of-concept data of ruxolitinib plus parsaclisib in myelofibrosis patients with a suboptimal response to ruxolitinib monotherapy, a randomized pivotal trial is being prepared in this setting. Additional JAK-based combinations are either ongoing or in preparation. The Phase 3 REACH 3 trial of ruxolitinib versus BAT in patients with steroid-refractory chronic GVHD has completed recruitment and results are expected in the second half of 2020.

INCB39110 (now Itacitinib) Phase 3 GRAVITAS-301 trial for treatment of patients with newly-diagnosed acute GVHD completed enrollment; results are expected ? If successful, Incyte expects to submit applications for itacitinib in major markets globally. GRAVITAS-309, a Phase 3 trial of itacitinib as a treatment for patients with newly-diagnosed chronic GVHD, was launched in January of this year with results expected in 2021. An NSCLC combination trial is in Phase 1/2.

Parsaclisib (INCB50465) the selective PI3Kδ inhibitor as monotherapy in patients with diffuse large B-cell lymphoma (DLBCL), continued the Phase 2 CITADEL 203, 204 and 205 trials (for follicular, marginal zone, and mantle cell lymphomas, respectively). Also in combination therapy with Jakafi.

MGA0012 Phase 1 solid tumor monotherapy trials are in expansion cohorts. MGA012 is licensed from MacroGenics.

INCB86550, an oral PD-L1 inhibitor, is in Phase 1.

INCMGA0012 (PD-1) is now in Phase 2 for endometrial cancer, merkel cell carcinoma, and anal cancer, with data expected in 2020, and possible future combination studies.

INCB54707 (JAK1 inhibitor) Phase 2 underway for hidradenitis suppurativa.

INCB81776 (AXL/MER inhibitor) Phase 1 dose escalation underway for immune-directed cancer.

See also Incyte pipeline.

Cost of product revenue was $27 million. GAAP operating expenses were: $1,085 million for research and development; $111 million for selling, general and administrative expenses; $2 million collaboration cost sharing; and a $7 million charge for change in value of a contingent consideration. Total costs $1.23 billion. Leaving loss from operations of $664 million. Interest and other income was $8 million. Unrealized loss on investment was $48 million. Income tax $17 million.

Q&A Summary:

Combination therapy plans? Combinations are a major focus. Trials remain on track. Rux+PI3Kdelta Phase 3 launch this year. For the other combinations we will see where the data leads us. Bars may be lower for later line therapies, but that needs to be worked out with regulators.

Rux potential for COVID? Standard of care is likely to evolve, could be remdesivir. No known drug interaction between it and rux. We don't see this as a big commercial opportunity, mostly because it could be over fast. We had done some prior work, so we were able to make a decision with Novartis and ramp up fast. The early access program is already available, drug free of charge.

We believe we are going to grow revenue very rapidly between now and 2030. We have a strong cash position and strong cash flow, so we can do more business development.

Bladder cancer? Physicians are already testing for FGFR mutants, setting us up if we get an approval.

Any reason to think JAK inhbition would be better than IL6 inhibition for COVID? Yes, JAK impacts multiple cytokine pathways, so could be more effective than targeting a single molecule like IL6.

MorphoSys has their sales team in place already, and we are ramping up.

We see a short term opportunity with a PD-1 in niche applications, then later larger opportunities that require large Phase 3 trials, like NSCLC. The program is progressing well.

Atopic dermatitis plans? Completed enrollment and presented data, preparing the filing for end of 2020, because we need to wait for safety fallout data.

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