Incyte Corporation (NASDAQ:INCY) Q1 2024 Earnings Call Transcript

Incyte Corporation (NASDAQ:INCY) Q1 2024 Earnings Call Transcript April 30, 2024

Incyte Corporation misses on earnings expectations. Reported EPS is $0.746 EPS, expectations were $0.88. INCY isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello and welcome to Incyte First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Ben Strain, Associate Vice President, Investor Relations. Please go ahead, Ben.

Ben Strain : Thank you, Kevin. Good morning and welcome to Incyte’s First Quarter 2024 Earnings Conference Call. Before I begin, I encourage everyone to go to the Investors section of our website to find the press release, related financial tables, and slides that follow today’s call. On today’s call, I’m joined by Hervé, Pablo, Christiana, who will deliver our prepared remarks. Barry, Steven, and Matteo will also be available for Q&A. I would like to point out that we’ll be making forward-looking statements which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. I will now hand the call over to Hervé.

Hervé Hoppenot : Thank you Ben and good morning everyone. Before I get into the quarterly results, I’m pleased to share that Matteo Trotta has recently joined Incyte as General Manager of our US Dermatology Business Unit reporting to me. Matteo comes to us from Novartis where he was responsible for the immunology business in the US and he will be leading the US dermatology team at Incyte to continue to grow Opzelura, prepared for the launches of povorcitinib and other promising IAI pipeline products in the coming years. Now turning to our Q1 results. Total revenue grew 9% in Q1 versus last year. And I will discuss in the next slide the details of the underlying demand growth for Jakafi and Opzelura to clarify the performance of both brands in Q1.

Starting with Jakafi on Slide 6. In the first quarter, Jakafi net product revenue of $572 million does not fully reflect the demand growth as total patients increased 5% in the first quarter versus the same quarter last year, with growth driven by PV and GVHD. Sequential growth versus Q4 was also strong in all indications, as you see on the graph on the right. Jakafi channel inventory reduction in the first quarter had a negative impact on net revenues of approximately $55 million. Based on the strong patient demand since this quarter and anticipated growth for the balance of the year, we are reiterating our full year 2024 Jakafi net revenue guidance of $2.69 billion to $2.75 billion. Turning to Slide 7 and looking at Jakafi, total paid demand by indication during the first quarter of 2022, 2023 and 2024.

As you can see, total paid demand growth in the top left corner continues to be strong. MF in the top right is consistent year-after-year, and the largest growth is coming from PV and GVHD. Additionally, Jakafi continues to maintain its leadership and market share in myelofibrosis. Based on market research, total patient market share and discontinuation rate have remained stable in the first-line setting over the past several months with virtually no impact from competitors, which has been consistent with our expectations. Moving to Opzelura. Total Opzelura net product revenues in the first quarter were $86 million, up 52% when compared to the same quarter last year. The weekly prescription trend, as shown on the right of Slide 8, reflects continued growth of Opzelura in both atopic dermatitis and vitiligo, with typical Q1 seasonality.

US total prescriptions for Opzelura grew 41% year-over-year, outpacing the total AD market, which grew 23%. The AD market, including Opzelura, was impacted by the Change Healthcare Cyber Attack, particularly in March. Importantly, we are beginning to see in April a rebound in filled prescription to level seen before the cyber-attack. From an access perspective, we have seen early encouraging results since Opzelura moved in January to preferred position in the CVS network, as TRX growth within the CVS network outpaced growth seen in other plants. Moving to Slide 9, as discussed in the past, we are on track to provide 10 high-impact launches by 2030. Importantly, many of the programs highlighted on this slide are de-risked as they are post-proof-of-concept, including Axatilimab, which has been submitted to the FDA for approval, Ruxolitinib Cream in Pediatric AD to be submitted to the FDA in Q3, and povorcitinib where we are in Phase 3 in HS and Vitiligo and initiating a Phase 3 study in prurigo nodularis later this year.

Moving to slide 10, In addition to our internal efforts to deliver multiple launches by 2030, we recently announced an agreement to acquire Escient Pharmaceuticals for $750 million with cash on hand. This acquisition further strengthens our pipeline with two novel first-in-class medicines, EP262 and EP547, which have the potential to treat a broad range of inflammatory disorders. I will now turn the call over to Pablo.

Pablo Cagnoni : Thank you, Hervé. And good morning, everyone. In the first quarter, we continue to make solid progress across our pipeline, which is focused on three areas, MPNs and graft-versus-host disease, oncology, and inflammatory diseases. In MPNs and graft-versus-host disease, we initiated a Phase I study earlier this quarter were a JAK2V617F inhibitor. As a reminder, the JAK2V617F mutation is the most common somatic mutation in myeloproliferative neoplasms and is present in 55%, 60%, and 95% of patients with MF, ET, and PV, respectively. Unlike Ruxolitinib, which inhibits both wild-type and V617F mutation-positive cells, 058 selectively binds to the JAK2 JH2 site, disrupting the V617F-induced confirmation and thus allowing selective inhibition of mutant activity in the JAK2 receptor while sparing wild-type.

Together with our anti-mutant CALR program, these two potentially disease-modifying programs represent a fundamentally new approach to addressing MF, ET, and PV and could help to solidify our leadership in MPNs. As previously disclosed, we submitted the BLA for Axatilimab for the treatment in third-line chronic graft-versus-host disease late last year. In February, the filing was accepted for prior review, and we anticipate a decision by the FDA in the second half of 2024. We are excited by the possibility of bringing a new treatment options to patients with this devastating complication of hematopoietic stem cell transplant. In oncology, we continue to build out a robust pipeline with the potential to deliver meaningful innovation for patients.

This quarter, we initiated a Phase I study with our KRASG12D inhibitor, INCB161734. INCB161734 is a potent, selective, and orally bioavailable KRASG12D inhibitor. And as highlighted at AACR earlier this month, it has shown excellent efficacy in several preclinical models. With no currently approved G12D targeting agents, 734 could address an important patient need as a KRASG12D mutation is found in 40% of pancreatic ductal adenocarcinoma, 15% of colorectal cancers, and 5% of non-small cell lung cancers. In dermatology, we continue to maximize the potential of Ruxolitinib Cream and povorcitinib and believe the acquisition of Escient Pharmaceuticals, will substantially expand our II pipeline by adding 2 first-in-class medicines with the potential to address a number of medical needs.

The key driver of our interest in Escient is our MRGPRX2 program. MRGPRX2 is a specific novel mechanism for blocking mast cell activation independent from IgE, and has been a high priority target to add to our IAI pipeline. EP262 is a first-in-class medicine, which entered the clinic in January of 2023, and has been evaluated in Phase 2 studies. In the Phase 1 healthy volunteer study, EP262 was well-tolerated, had low interpatient PK variability, and achieved exposures well above predicted efficacious levels. EP262 is currently in a Phase Ib open-label study in CIndU, and in two randomized Phase II studies in CSU and atopic dermatitis with data for all three studies expected by early 2025. EP547 is a potent and highly selective antagonist of MRGPRX4.

MRGPRX4 is expressed on neurons in the dorsal root ganglia and specifically activated by bile acids that are increased in cholestatic patients. Initial evaluation is being conducted in cholestatic pruritus with clinical proof-of-concept for cholestatic pruritus associated with PBC and PSC anticipated by early 2025. A number of exciting readouts are expected by early 2025 with the potential first launch in CSU by 2029. At AAD earlier this quarter, we presented additional data from the randomized Phase 2 study of Ruxolitinib Cream in patients with mild-to-moderate Hidradenitis Suppurativa, reinforcing the potential Ruxolitinib Cream in the syndication. The study met its primary endpoint, demonstrated a significantly greater reduction in abscess and inflammatory nodule count compared to control at week 16, and further reinforces the efficacy and safety profile of Ruxolitinib Cream.

We are currently engaging with the FDA to obtain agreement on a potential Phase 3 design. We also presented positive data at AAD from the randomized Phase II study evaluating povorcitinib in patients with prurigo nodularis and are on track to initiate a Phase III study in the coming months. As highlighted on Slide 21, the study made its primary endpoint of a four-greater-point improvement in the itch Numerical Rating Scale score, which was achieved by significantly more patients who received povorcitinib across all dosing groups at week 16 versus placebo. We believe that with Ruxolitinib Cream and povorcitinib, we will be the only company with the ability to potentially provide both a topical and oral option for a number of indications including prurigo nodularis, Hidradenitis Suppurativa, and vitiligo.

We continue to make important progress in the first quarter by achieving several clinical and regulatory milestones. Within our oncology pipeline, we believe that our potentially best-in-class CDK2 inhibitor is an active agent, and we look forward to sharing data as well as our development plan later this year. In addition, the pivotal trial of tafasitamab in patients with follicular and marginal zone lymphoma, also known as inMIND, we’ll read out later this year, and we look forward to sharing those results. With the BLA for Axatilimab submitted late last year, we look forward to working with the FDA to make Axatilimab available to patients with chronic graft-versus-host disease later this year and to initiate additional combination studies in patients with less pretreated chronic graft-versus-host.

Within our dermatology portfolio, we expect to submit the sNDA for Opzelura for pediatric atopic dermatitis and expect multiple data readouts throughout the year. With that, I would like to turn the call over to Christiana for the financial update.

Christiana Stamoulis : Thank you, Pablo, and good morning, everyone. Our first quarter results reflect continued strong growth with total revenues of $881 million, up 9% versus the same period last year. Total product revenues of $730 million in Q1 were driven by demand growth for Jakafi and Opzelura and increased revenue contribution from Monjuvi following the acquisition in February of the global exclusive rights to tafasitamab. The product demand growth was partially offset by an anticipated reduction in channel inventory for Jakafi and the typical Q1 dynamics for Jakafi and Opzelura. Total royalty revenues, which are primarily comprised of royalties from Novartis for Jakafi and Tabrecta, royalties from Lilly for Olumiant were $126 million, up 9% compared to the first quarter of 2023, driven by strong demand for Jakafi.

Total revenues included $25 million upfront payment received under our collaboration and license agreement with CMS, for the development and commercialization of povorcitinib in China and select other Asian countries. Turning to Jakafi on Slide 26. Jakafi net product revenues were $572 million for the first quarter. Net product revenues reflect continued demand growth with total patients up 5% year-over-year, driven by growth in PV and GVHD and continued stable demand in MF. As a result, we experienced the highest quarter paid demand for Jakafi since launch. As expected in Q1, we saw patients that were on free drug in the fourth quarter of 2023 returned to paid demand and a related decrease in channel inventory levels. As you may recall, channel inventory levels increased by $46 million in the fourth quarter of 2023.

In the first quarter of this year, we saw a drawdown in channel inventory, which had $55 million negative impact on net sales versus the fourth quarter of 2023. While we expect channel inventory to remain around the levels we ended in Q1, buying decisions of our customers can’t always be predicted. In addition, net sales in the first quarter were impacted by the typical Q1 higher gross net deductions as a result of both contributions to close the Medicare gap and commercial copay assistance. Turning now to Opzelura on Slide 27. Net product revenues for the first quarter were $86 million, representing a 52% increase year-over-year, driven by growth in net new patient starts and refills across both AD and vitiligo, as well as early contribution from the commercialization of Opzelura for vitiligo in Germany, Austria and France.

As expected, Opzelura net product revenues in the first quarter reflected the typical Q1 seasonality and the reset of deductibles and copays at the beginning of the year. Beyond the typical Q1 dynamics Opzelura product revenues were impacted by the cyber-attack on UnitedHealth Change Healthcare unit. Moving on to Slide 28 and our operating expenses on a GAAP basis. Total R&D expenses were $429 million for the first quarter, representing a 6% year-over-year increase, which was primarily as a result of the progression of our pipeline. Total SG&A expenses were $300 million for the first quarter, representing a 5% year-over-year decrease, driven by the timing of direct-to-consumer marketing activities and certain other expenses. Now turning to the acquisition of Escient Pharmaceuticals.

Under the terms of the agreement, we will acquire Escient for $750 million in an all-cash transaction. We believe Escient’s two lead programs offer a multibillion-dollar potential commercial opportunity across multiple indications and have the potential to contribute to our revenue by 2029. In addition, we expect to be able to realize synergies by leveraging our current development and commercial capabilities and infrastructure. We anticipate the acquisition to become effective by the third quarter of 2024, and [add] (ph) approximately $5 million per month in incremental R&D expense. Depending on the timing of the close, we expect the acquisition to add $20 million to $30 million to the full year 2024 R&D expenses. Finally, following this acquisition, we’ll continue to have a strong balance sheet, which will allows us to consider additional opportunities.

As of the end of the first quarter, we have $3.9 billion in cash and no debt. Moving to our guidance for 2024. Excluding the impact of the acquisition of Escient, we are reiterating our full year 2024 guidance for Jakafi, our other hematology/oncology products, COGS, R&D and SG&A. Operator, that concludes our prepared remarks. Please give your instructions and open the call for Q&A.

See also 20 Richest Billionaires in Telecommunications and 20 Countries That Have The Potential To Be Major Tourist Destinations.

Q&A Session

Operator: Certainly, we’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Kelly Shi from Jefferies. Your line is now live.

Kelly Shi: Thank you for taking my questions. So for Opzelura, could you give us some more color on the go-to net for the rest of the year? And what is the latest [review] (ph) and do you see in both AD and vitiligo? Thank you. And I also have a follow-up.

Christiana Stamoulis: Hi, Kelly, it’s Christiana. Let me take the first part of the question, and then I will turn it to Matteo to comment on the second part. So in terms of the gross to net in the first quarter, it was at the same level as last year Q1, so at around 60%. Going forward, as we have previously discussed, we will not be making forward-looking comments on gross to net. Our focus is on maximizing the potential of Opzelura and by this, I mean the maximizing net sales versus looking at gross to net in isolation.

Matteo Trotta: And on the split of business between the two indications, when we look at the IQVIA data, triangulated with external and internal sources, we see a 40-60 split consistent over time, where 40% is non-segment of Vitiligo and 60% is atopic dermatitis. And we’re very happy to see that both indications are growing at quite a healthy pace.

Kelly Shi: Thank you. And also at AAD dermatology conference, we saw the data of topical [ruxo] (ph) cream in both Hurley Stage 1 and the 2 HS patients. Could you share what kind of physician feedback this year? And also, how do they say [indiscernible] in both cardiac Stage 1 and 2 patients for novel topical drug like Opzelura needed to manage disease in this specific population? Thank you.

Steven Stein: Yes. Thank you for the question. It’s Steven. So the milder type of HS still represents about 100,000, 150,000 patients in the United States. It still has morbidity and unmet need, and these patients have absences and nodules that cause them discomfort and morbidity and lends itself to a topical treatment because it’s not as extensive as the moderate and severe, which has fistulas, et cetera. So we conducted this POC study and saw this data, which is extremely encouraging in the mild stage of HS in terms of abscess and nodule decreases. And as Pablo said in his prepared remarks, we are now working with regulators to get an appropriate endpoint in this entity for which no drug is approved and has this unmet need I spoke about. To the specifics of your question, the physician and KOL feedback is excellent. I mean they were surprised by the efficacy seen with a topical agent in this entity. So we are excited about it as well.

Kelly Shi: Thank you very much.

Operator: Your next question is coming from David Lebowitz from Citi. Your line is now live.

David Lebowitz: Thank you very much for taking my question. Could you comment on Jakafi growth dynamics going forward given IRA and shift to the out-of-pocket expenses for patients?

Steven Stein: Sure. As you saw from our guidance, $2.69 billion, $2.75 billion, we’re very optimistic about the continued growth of Jakafi. Obviously, we benefit in the IRA because as we talked about before, we have the small biotech exemption. So beginning in 2025, for example, with the reduced out-of-pockets for patients, it really just helps the patients, of course but we don’t have to contribute that 20% to catastrophic that other oral drugs will. So we think there is a benefit in 2024 for the reduced out-of-pocket in Medicare Part D being around [3,250] (ph) for patients for the entire year and then next year, being 2,000 all patients who are taking oral oncology drugs, I believe, will benefit, but we continue to see our growth, as Hervé pointed out, coming from PV, GVHD and in myofibrosis were very stable and remain the market leader in that setting.

David Lebowitz: Would you be able to comment further on whether — how growth in 2025 might look vis-a-vis 2024 given these dynamics?

Steven Stein: No. We obviously said we are still confident about $3 billion plus by the time we hit 2028, so that’s what we are still confident in. And so we think that 2024 and 2025 should be just fine.

Operator: Thank you. Next question is coming from Kripa Devarakonda from Truist. Your line is now live.

Kripa Devarakonda: Hi guys. Thank you so much for taking my question. On Jakafi, Hervé, you mentioned that you see very little impact on Jakafi’s share from competitors. Can you talk a little bit about whether the competition has changed the average duration on Jakafi? They do go on to Jakafi in the frontline, but is there any — are you observing people getting off of Jakafi sooner? And also for the BET inhibitor combination, there was a recent report of increased AML incidents in patients on the Jakafi/BET combo for a competitor. I just wanted to get your insights into how this may or may not impact your internal BET program?

Hervé Hoppenot: So Kripa, I’ll take your first call, and then I’ll hand it over to Pablo for the second part of your question. So for Jakafi share from competitors. There really hasn’t been any impact on our duration of therapy or discontinuation rates at all, certainly in myelofibrosis. So we are very confident. We remain the market leader. Other JAK inhibitors may be used in the second-line, third-line setting. If anything, the market size itself is growing because now patients will go on 1, 2, 3 therapies, and I’ll hand it over to Pablo for the second part of your question.

Pablo Cagnoni: Yes, thank you for the question. So I mean, obviously, I’m not going to comment on data from other companies. our BET inhibitor program, as we’ve discussed is going very well, and we’ll discuss additional data over the course of the year, and we are planning a potential pivotal trial going forward, which we’ll unveil later this year. Reviewing the data from our internal program, we have, at this point no concerns over the safety when it comes to AML transformation. Now you — I’m sure you know that if you follow a number of patients with MF for long enough, some of them will have transformation to AML as part of the natural history of the disease. But at this point, we have no concerns with our program.

Operator: Thank you. Next question is coming from Michael Schmidt from Guggenheim. Your line is now live.

Michael Schmidt: I had a question on povorcitinib and again commenting about another data set. But I just wanted to get your insight on the reasons Rinvoq head-to-head study against Dupixent and AV and whether or how that impacts perhaps your view on the potential of povorcitinib across various dermatology indications?