英賽德 (INCY) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Incyte Corporation second-quarter financial results and corporate update. At this time all participants have been placed on a listen-only mode. The floor will be open for your questions following the presentation. It is now my pleasure to turn the floor over to your host, Ms. Pam Murphy. Ma'am, the floor is yours.

Thank you and good morning. Thank you for joining us. With me today are Paul Friedman, Incyte's President and Chief Executive Officer, and Dave Hastings, Incyte's Executive Vice President and Chief Financial Officer. John Keller, our Executive Vice President and Chief Business Officer, and Patricia Schreck, Incyte's Executive Vice President and General Counsel, are also here today and will be available during the Q&A.

Paul will begin with a review of our drug discovery and development program, followed by Dave's discussion of Incyte's second-quarter financial results, followed by Q&A. Before beginning, we would like to remind you that prepared statements that management will be making during this conference call and statements made in response to questions will contain predictions, estimates, and other forward-looking statements that are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those that are described in our SEC filings.

The statements include anticipated plans, timelines, costs, and outcomes related to our drug discovery and clinical development program, and our expectations as to financial items such as cash, revenues, and expenses. We encourage you to review our latest 10-Q filed March 31, 2004, and our press release issued earlier today. I will now turn the call over to Paul.

Thanks, Pam. Good morning. We are continuing to make excellent progress in our drug discovery and development programs. To update you I'm going to begin with Reverset, our once-a-day oral therapy for HIV. In the last conference call, I told you that we had seen very strong antiviral effects with Reverset as monotherapy in a 10-day multiple dose Phase II trial in 30 treatment-naive HIV-infected patients. The results were impressive, with mean reductions in viral load for all treated patients ranging from 1.7 to 1.8 log copies/mL.

On July 12, we reported new findings from the fourth arm of this study, showing potent antiviral effects with Reverset when it alone is added to a failing drug regimen in treatment-experienced HIV patients. Among the 8 patients who received 200 milligrams of Reverset once-a-day for 10 days, the mean reduction in viral load among these treatment-experienced patients was 0.8 log copies/mL. This reduction in viral load compares quite favorably with those for other approved NRTIs including tenofovir or Viread. 7 of the 8 treatment-experienced patients had a clinically significant viral load response; and 4 of the 8 achieved viral load of less than 400 copies/mL following only 10 days of dosing.

Now, although this is based on only 8 patients, the results are encouraging for several reasons. First, the subjects were heavily treatment-experienced, having failed an average of over 5 prior regimens. Second, we saw positive responses in subjects who were failing regimens that included AZT, 3TC, and tenofovir. This is consistent with our preclinical data, which indicates that Reverset has a unique resistance profile and in cell culture is able to inhibit replication of HIV that is resistant to each of these approved and other approved NRTIs.

Reverset was well tolerated in all patients, naive and treatment-experienced, with no significant adverse effects observed. Finally, and importantly, no new resistance (inaudible) patient developed during the 10 days of treatment with Reverset. Dr. Robert Murphy, the study's lead investigator, presented these preliminary findings at the XV International AIDS Conference in Bangkok 2 weeks ago, and he will also present these results this fall in somewhat more detail at ICAC (ph).

We are now enrolling patients in a Phase IIb trial. This trial is evaluating 180 treatment-experienced patients who will be equally randomized to receive 50, 100, or 200 milligrams of Reverset or placebo once-a-day as part of a HAART regimen. Our goal is to complete patient enrollment and conduct an interim analysis by the end of the year. Initiation of the pivotal Phase III trials is planned for mid 2005.

Because this Phase IIb trial is blinded for 6 months, it is unlikely that we will be in a position to publicly describe the full results until the middle of next year, in time for the International AIDS Society Meeting. That said, we do expect to be in a position to let people know our plans for Phase III sooner than this, which would confirm that, in our view, the Phase IIb results were sufficiently positive to support moving into Phase III.

Now, I will move on to discuss our CCR2 antagonist program. CCR2, a member of the chemokine receptor family, is expressed mainly on blood cells called monocytes; and as I have described before, blocking these receptors prevents monocytes from leaving the bloodstream and entering a tissue undergoing an inflammatory stimulus where they become macrophages. So what you are doing here is you are controlling macrophage trafficking. Antagonists of the receptor, an interesting new class of drugs, with the potential to treat a variety of chronic inflammatory diseases including but not limited to rheumatoid arthritis, multiple sclerosis, and atherosclerosis.

We recently began testing our lead compound from this program Incyte 3284 in a Phase I single and multiple dose study in healthy volunteers. During the multiple-dose portion of the study we are conducting a delayed type hypersensitivity or DTH skin (ph) test, which has the potential to serve as a pharmacologic proof of principal. We expect to complete the Phase I trial in September, and begin Phase II studies in rheumatoid arthritis and possibly 1 other potential indication. We expect to announce preliminary Phase I results sometime in the fourth quarter this year.

Many of you have asked about our commercial plans for this program given the large market opportunity for anti-inflammatory therapies. I can tell you that we intend to seek a partner for the program, because the range of inflammation-based diseases in which CCR2 antagonists might well have utility is very broad and it is thus too expensive for us to address effectively and competitively on our own. The market for anti-inflammatory therapies encompasses not only diseases such as rheumatoid arthritis and multiple sclerosis, as I mentioned before, but also large primary care indications including atherosclerosis.

We have initiated early stage discussions with potential partners, but because we have a very strong cash position we have the ability to independently advance the program into Phase IIa. So I don't want to predict a stage at which we will ultimately decide to partner this program or the timing or scope of that potential collaboration. But based on the interest that we have thus far received, I'm very confident we will secure a strong partner.

The final program I will describe for you today is our most advanced oncology program. It is another internal program where we have made rapid progress during the past year. We have discovered a series of orally active inhibitors of a key enzymatic activity called sheddase, s-h-e-d-d-a-s-e; works at a critical step in the signaling pathways of the epidermal growth factor receptor family or EGFR for short. This family has received a great deal of attention, given the success of Herceptin, Irressa, Erbitux, and now Tarceva; and the pathways are now recognized as critical to the growth of a variety of solid tumors such as non small cell lung cancer, colorectal cancers, and breast cancer.

There are 4 distinct EGFRs, which are referred to as Her, for human epidermal growth factor receptor 1, 2, 3, and 4. The activities of the drugs I just mentioned are each restricted to only 1 of these receptors. For example, the antibodies Erbitux and Herceptin being to the Her-1 and Her-2 receptors respectively and reduce receptor-induced intracellular signaling, which in turn reduces cell proliferation.

The tyrosine kinase inhibitors Irressa and Tarceva specifically reduce activation of only the Her-1 pathway. They act downstream of the antibodies by interfering with phosphorylation of the receptor, which is also needed to induce intracellular signal.

Our sheddase inhibitors act in a third distinct way on these EGFR pathways, but their inhibitory actions are not restricted to a single EGFR pathway as the following in vivo experiments demonstrate. In a preclinical Her-2 receptor dependent model of human breast cancer, 1 of our sheddase inhibitors was administered for 28 days and demonstrated tumor growth inhibition comparable in magnitude and duration to an optimal dose of Herceptin.

In addition in another model, this one a preclinical Her-1 receptor dependent human breast cancer model, 1 of our sheddase inhibitors was as effective as a maximally tolerated dose of the tyrosine kinase inhibitor Irressa. Additionally at the dose we used our compound was tolerated extremely well, while Irressa actually showed some toxicity in the mice including weight loss and a few deaths.

We have selected a clinical candidate, Incyte 7839, to take through preclinical toxicology based on several non-GLP safety studies with Incyte 7839 and closely related compounds that we have already completed. We expect that the good laboratory practice, GLP, preclinical toxicology studies will give us a sufficient index so that we can file the IND late this year and begin clinical trials very early in 2005.

In closing, I believe we are in a very strong position to make continued progress for the rest of this year and into 2005. We will be completing our Phase IIb Reverset study, and we will select a final dose for the pivotal Phase III trials, which we expect to initiate in mid '05. We will complete our first Phase II study for our lead CCR2 antagonist compound, 3284. We will prepare our sheddase inhibitor, our oral sheddase inhibitor, for human clinical trials. We will be presenting data on Reverset, CCR2, and our sheddase program at a number of scientific meetings.

And we will be advancing a number of internal discovery programs into formal preclinical testing. I'm confident that these programs will add to the strength and value of our growing pipeline, and I am anticipating and looking forward to describing them to you later in the year. Now, I will turn the call over to Dave.

Thanks, Paul. Good morning, everybody. Our ending cash balance at June 30, 2004, was approximately $474 million which reflects the net proceeds of 242 million from our 3.5 percent subordinated convertible note offering, and our net use of cash of approximately $52 million year-to-date. We still expect our cash use this year to range between 130 and 140 million for the year. This is unchanged from our previous guidance.

As a reminder, cash and its use is the key metric by which we measure our financial performance. It is important to note that our cash guidance does not include any cash that may be used for repurchases of our 5.5 percent subordinated convertible notes or for any possible in-license our purchase of products in clinical development.

Revenues for the quarter were 5.2 million, and were 11.8 million for the 6 months ended June 30, 2004. Given the amount of revenue recorded thus far in 2004, we are raising our revenue guidance to a range of 12 to 14 million for the year, from a range of 7 to 9 million.

The net loss for the quarter was 63.6 million or 87 cents per share, and 101.3 million $1.39 per share for the 6 months ended June 30, 2004. Included in our net loss for the second quarter and year-to-date were restructuring and related charges of 34.5 million and 42.7 million respectively, primarily recorded in connection with our closure of our facilities in Palo Alto. As you recall, our guidance for total restructuring charges for the year was up to $47 million, and at this point that guidance remains unchanged.

Also included in our net loss for the 6 months ended June 30, 2004, is a charge of $2.7 million recorded as a result of write-downs related to reduced market valuations in strategic investments that Incyte holds in other companies. This charge was recorded in the first quarter and is included in interest income and other income net.

Our R&D expense was 25.6 million for the quarter, and 51.7 million for the 6 months ended June 30, 2004. As a reminder, the first quarter of 2004 includes expenses for the Palo Alto operation as the closure of those facilities was not effected until April 2. We still expect our overall R&D expense for the year to range from 91 to 95 million. This is unchanged from our previous guidance.

Our selling, general, and administrative expenses were 6 million for the quarter, and 11.8 million for the 6 months ended June 30, 2004. We still expect selling, general, and administrative expense to range between 21 and 23 million for the year. Again this is unchanged from previous guidance.

In terms of other income expense, our interest income was 1.9 million in the second quarter, and 3.6 million for the 6 months ended June 30, 2004. We expect our interest income to range between 7 and 8 million for the year. This is unchanged from our guidance given in our Q1 call. Our interest expense was 4.9 million for the quarter, and 8.4 million for the six months ended June 30, 2004. We expect total interest expense to amount to approximately $18 million for the year. This is also unchanged from our guidance given in our Q1 call.

Both interest income and expense could fluctuate depending on what actions we take in connection with the 5.5 percent subordinated convertible subordinated notes. In addition our other income expense guidance does not include any potential adjustments related to our strategic investments in other companies, which may occur during the year.

I would like to conclude my remarks today by saying that our financial performance this year is in line with our expectations, and I believe we're well positioned to advance our drug discovery and development programs. With that, I will now turn call back over to Paul.

Thanks Dave. Operator, I would like to open the call up now for Q&A.

(OPERATOR INSTRUCTIONS) David Witzke, SunTrust Robinson Humphrey.

This is Han Lee (ph) filling in for David. I have a couple quick questions regarding the Reverset. The ongoing Phase IIb study 203 (ph). Is this a combination or single agent trial? Also, what's the patient enrollment criteria and how is patient enrollment going so far?

The enrollment is going quite well. It is a fairly complicated protocol to describe without any overheads, but let me take a crack at it. This will not be the way our Phase III trials will be done, but it's a way that we can get a little bit more information on the potency of Reverset before we combine it with an optimal new set of HAART agents in people failing their current regimen.

So the way this goes is all the patients will be regarded as failing their current regimens. They're all treatment-experienced. It will be decided before they get randomized to receive either 50, 100, or 200 of Reverset or placebo as the additional agent, what a physician would do in the absence of Reverset to optimize the current failing regimen. So that would be decided before randomization occurs.

Then the patients are randomized to receive either placebo or 1 of the 3 doses of Reverset. And for 14 days, they get added to their current failing regimen either placebo or one of the Reverset doses. So for 14 days, we get more information of the type we got in the fourth arm of the 202 study. We would like to see a little bit more of that because the 202 study, although it was very encouraging to us, realistically is only 8 patients at one dose. So that 2-week period gives us that information.

After 2 weeks, they stay on whatever they were randomized to, either placebo or 1 of the 3 doses of Reverset. But their failing regimen gets replaced with the predetermined optimized regimen, and they then are followed for 3 months. Actually it's longer than that. It could be up to 6 months, but certainly for 4 months before the data that that particular patient generates is analyzed.

There will be patients in the study who have nothing to be optimized to. They will remain on their suboptimal regimen, because the doctor would have decided there is nothing -- there is no improved regimen to put them on. There will be people who will have TAMs. There will be people who have M184V or that are resistant to 3TC and Emtriva. There will be people who have mutations that would engender resistance to tenofovir.

There are some group criteria in the enrollment. In the enrollment criteria, there are ways to make sure that we don't get a skewed population. That is, we will only let a certain percentage of people with no optimizable regimen in. Do you follow what I'm saying? Because otherwise you could end up without a full-spectrum of genotypes and phenotypes, which is what we want to see in Phase IIb to allow us to more effectively finalize the design for the Phase III trials.

So, that is as best as I can describe it over the telephone how a study goes.

I see. I just (technical difficulty). This is more like add-on trial? So Reverset is add-on failing and also the second regimen the patient is receiving?

Yes, it is an add-on. It is the same concept that Gilead used with Viread. But what they did is they added on Viread to a failing regimen but they never optimized. They just kept the patients for 6 months, adding on Viread to the failing regimen. As you may recall, they got slightly less than a 0.6 log drop in viral load. Compare that to our 0.8.

So physicians, patient groups, and the FDA do not want to see that type of study repeated. So you can for a very limited time add on to a failing regimen, but then there is an obligation, if you can to optimize the background therapy for the patient, which is what we are doing after the first 2 weeks of the study. But it is -- as you say, it is an add-on. It is adding on to 2 different regimens.

Got it. Thank you very much.

Alex Hittle, A.G. Edwards.

A couple of questions here. First, just following up on the trial design. In your prepared comments you said the results would be blinded for 6 months, and as you describe the trial there I get out to sort of 3.5. Can you explain how that works?

Well, when I said 3, I misspoke. We will carry the trial out for a full 6 months. We will probably carry the trial out once we have unblinded, right up until registration. Because if we can put everybody on the dose that we select for Phase III, we can get safety data to put into the package.

But what we will do -- we had originally felt that we would look at the data at 12 weeks. In a discussion with the FDA they wanted us to go to 16 weeks. So we will keep the study blinded all the way out to 24 weeks, but at 16 weeks we will look at the data and use that database to make whatever statements we are going to make publicly, and also to help us to choose the dose and finalize the criteria and rules for the 2 Phase III trials.

So, at 16 weeks, you will get the data but you will leave the investigators blinded?

Yes.

Okay. Then it will continue on for the full 24 weeks, at which point the investigators and the patients are unblinded?

Right.

Then the patients were not on what you selected as the optimal dose would then shift to the optimal dose?

There would be offered that opportunity, yes.

Okay. Good. Second question is on the revenues that you booked. Are those primarily from the BioKnowledge Library that you're keeping going?

It is actually a mix of the information business revenue, primarily. Most of it actually deferred from prior period.

Okay. There aren't any milestones coming in off the database subscribers in that, are there?

No.

Finally, I was wondering if you could comment more broadly on the combination HIV medications that were recently approved, and whether that has any ramifications for your development programs?

So, I think those are very useful and add a convenience level to patients who have never -- who are our treatment-naive. So they are just starting therapy, and while some now -- I guess up to 20 percent -- manifest some viruses that already have some resistance engendering mutations, you are still in a position there where you're likely to be put on a nonnucleoside reverse transcriptase inhibitor like Sustiva -- that is the most commonly used one -- plus Combivir, the new combination of Viread or Emtriva. That makes very good sense in the naive population.

As I have said at a number of public presentations where I've described where I think Reverset will be most heavily used, I believe it will be the first choice, or in the first choices of second regimens. So, people fail the first regimens at a certain rate. When you get to the second regimens, it is much more difficult to justify using the fixed-dose combinations. In fact if you think about what they are, most people will then have the M184V mutations, so neither Combivir or the Viread-Embriva combination are going to work. You will be getting monotherapy.

So when you get past the first regimen and you're into this very large reservoir of treatment-experienced individuals, you have to individualize their therapy based on their genotypes and their phenotypes. Then the fixed-dose combinations become quite secondary in your choice of what patients should be on to suppress their now quasi-species of viruses that have significant resistance to the agents that the patient has failed.

So for the development of Reverset, it really changes nothing in terms of where we think Reverset is likely to get its major use. That is in a second, third, fourth, fifth, sixth combinations of drugs for treatment-experienced patients.

If Reverset turns out to be as safe -- and we certainly don't have that data now -- as 3TC, it is a cytodine analog like MTC (ph) and 3TC, so we're hoping that it will be a very, very well-tolerated agent. One could argue, and I think there will be some doctors and some patients who will favor this possibility -- although I would not think it will be a high percentage -- would favor using the absolute most potent agents you have in the very first regimen. That would be Reverset, tenofovir, and Sustiva or a protease inhibitor or Reverset AZT and Sustiva and a protease inhibitor.

In those instances, yes, it would be better if we could co-formulate, and we are thinking about it. It is just not something that is absolutely at the top of our priority list, because we have time to work on it. So, that is a longwinded answer, but there is different scenarios where the vast majority of it doesn't make any difference to us. Then there is this one where it would.

Thank you.

Annabel Samimy of UBS.

I have a quick question regarding what will it cost you to get the Reverset trial done? And how comfortable are you that you have the cash to take it all the way through the clinic? And what are your financing options going forward?

While, I will start and Dave can finish. We had -- I don't know. What did we say we have here?

474 million.

So it's going to be a fraction of that, a small fraction to take Reverset through to registration. The HIV trials are smaller, they're shorter. It is not a trivial amount of money, and we have not announced that, so I don't know whether we want to. I don't think -- you can kind of make the calculation yourself if you assume that we're going to have 800 to 1,000 patients in total in the 2 Phase III studies. And you make the assumption that it is, what, $25,000 a head? You can figure out what the costs are likely to be. So, we definitely can take it through to registration ourselves. Dave, you want to add anything to that?

I will, to reiterate, what Paul said, and say that we're actually confident that we have enough cash to really progress all our programs to the appropriate value-creation points. Our earlier financing this year of $250 million really created financial flexibility for the company, both in dealing with our pipeline, which is continuing to grow, as well as with our 5.5 percent convertible notes. So we are very confident that we have the cash and the wherewithal to progress all our programs.

I think from a financing perspective, I believe Incyte will be eminently financeable as we progress the pipeline, particularly as we push Reverset into Phase III in '05.

Also, I guess a separate question, also on Reverset. I guess there's a little bit of confusion out there with the patents. Do you have the method-of-use patents in dosing and manufacturing but not the composition-of-matter patent? Can you sort of explain the importance of that, and why you feel comfortable with your patent portfolio?

Yes, I will start and then if I don't give the answer completely clearly, Pat Schreck can chime in. Before we in-licensed Reverset, both when I was at DuPont and when we re-licensed it here, we went outside and got multiple external opinions on Reverset's patent position, which unanimously confirmed that the patents -- which included coverage of uses of Reverset, and the only use that we see for Reverset is in HIV, methods of making Reverset, and methods of dosing of Reverset -- provide appropriate and ample patent protection.

Reverset for example is not going to have utility in the viral hepatitities (ph) . So it's effective only in HIV. It is another reason why we are confident we have adequate patent protection. AZT, which was a very successful NRTI and still is, was commercialized on the basis of use patents alone.

The patent rights which we licensed from Pharmasset include 3 U.S. patents and their related filings in Europe, Canada, Australia, and Japan. Pharmasset exclusively licensed these from Emory University. The patents expire between '016 and '017. And one of these patents may qualify for a patent term extension to partially compensate for the time spent in clinical review by the FDA or corresponding foreign agencies.

So, we are quite confident that the patent portfolio that we have on Reverset protects us and gives us what we need to develop and commercialize the drug. I think I will stop there. Pat, do you have anything to add to that?

No. That's exactly right.

(inaudible)

(OPERATOR INSTRUCTIONS)

If there are no more questions, I want to thank you all for tuning in this morning. We certainly appreciate your interest. I am expecting that the rest of this year is going to be as productive as the first half, and we look forward to updating you on our progress as we move forward. Thanks and good morning to everybody.

Thank you. Thank you, callers. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day.