英賽德 (INCY) 2006 Q3 法說會逐字稿

Greetings ladies and gentlemen and welcome to the Incyte Corporation third-quarter financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Ms. Pam Murphy. Thank you, Ms. Murphy, you may begin.

Good morning and thank you for joining us. With me today are Paul Friedman, Incyte's President and Chief Executive Officer; Dave Hastings, our Executive Vice President and Chief Financial Officer; and Rich Levy, Senior Vice President of Development. We will begin today's call with an update from Paul on the progress in our drug development program. Dave will follow with a brief overview of Incyte's third-quarter financial results and we will then open up the call for Q&A.

Before beginning, I would like to remind you that some of the statements made during the call today, including statements regarding our plans and expectations for our drug discovery and development program and our financial results and guidance, are forward-looking statements. These forward-looking statements are subject a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our most recent 10-Q for the period ended June 30, 2006, and from time to time in our SEC filings. Paul?

Thanks, Pam. Good morning. We are continuing to make solid progress advancing our programs in oncology inflammation, HIV and diabetes. I'm going to briefly review our recent accomplishments in each of these programs and the time lines for clinical results.

For the Sheddase inhibitor, Incyte 7839, which targets the epidermal growth factor receptor signaling pathways, we're continuing to enroll refractory cancer patients with solid tumors that, such as breast, prostate, colorectal, and head and neck cancers in a multiple-dose escalation Phase Ib-2a study. This trial, which is designed to establish a maximum tolerated dose and to select a dose for Phase II is proceeding well. It is taking somewhat longer to complete than we had anticipated. We have successfully progressed through multiple dosing cohorts, but without yet reaching a maximum tolerated dose. And while this is encouraging with respect to the potential to achieve effective dosing levels for future studies, it is going to require us to evaluate a number of additional cohorts to find the NPD.

At present, we think it's going to take two or three more cohorts to do so, which means that we're now likely to reach the NPD in the first quarter of '07 and begin Phase II in the second quarter. And in these Phase II trials, we expect to focus as I've said before on specific the solid tumor types, such as breast, non-small-cell lung and/or colon cancers.

Sheddase inhibition represents a compelling new approach to a set of proven targets. 7839 is the only compound currently in clinical development that can decrease signaling through all four EGFR receptors. As it does so through a mechanism distinct from current EGF targeted agents, it offers the potential to be synergistic with existing and emerging therapies.

And for our second oncology program, which addresses an entirely different target, we plan to file the IND in the first three to four months of next year. If everything proceeds as we expect, this program has the potential to provide proof of concept data before the end of 2007.

Moving into our CCR2 program, Incyte 8696, our lead CCR2 inhibitor for the indications we retained in the Pfizer deal, that compound is on track to have an IND filing before year end. We expect to begin the Phase I program in healthy volunteers early next year before proceeding into a study in multiple sclerosis patients.

For our second inflammation program, which is directed at a different target, we plan to file the IND for the lead development compound in the first quarter of next year. And as with a new oncology program, this program also has the potential to provide proof-of-concept data before the end of 2007.

For our CCR5 antagonist, Incyte 9471 for treating HIV, we have completed Phase I in healthy volunteers; that was completed in the third quarter. From our assessment of its profile so far, we believe that 9471 may be the first CCR5 antagonist which can effectively be dosed once daily without ritonavir boosting. Obviously, it can also be dose with ritonavir in patients who take that drug as part of their anti-HIV regimen.

We recently began screening for a 14-day Phase IIa trial to evaluate 9471 as monotherapy in at least 20 HIV patients who are not currently on medication. Top-line safety and efficacy results from this trial are expected very early in 2007.

We have also completed our one-month preclinical toxicology trials for a second CCR5 antagonist, Incyte 15050. We expect to file the IND this quarter and begin Phase I testing before the end of the year. Given how well 9471 is currently performing, we may elect not to progress 15050 beyond the Phase I PK and tolerability assessment unless unexpected issues arise from 9471.

Although there continues to be extensive discussion regarding the role that CCR5 antagonists will have in the HIV therapeutic area armamentarium, it seems obvious to us that they're likely to have their greatest benefit in patients in which the R5-Tropic Virus predominates, such as treatment-naive and treatment-experienced patients with less advanced disease. Because the majority of first-line and an increasing number of second-line regimens are once a day, we believe that 9471 could have a significant advantage over Vicriviroc and Maraviroc in these early regimens. It's noteworthy that once-daily dosing of neither Maraviroc nor Schering's Vicriviroc in treatment-naive patients were adequately effective. At present, only twice-daily dosing of Maraviroc is being evaluated in this population where most patients harbor pure R5-Tropic Virus.

9471 has a very long half-life, and as I noted above, we expect that with once-daily dosing, we'll be able to obtain exposures that will yield sustained viral control without the use of ritonavir. Given the association of ritonavir with hyperlipidemia, atherosclerosis and cardiovascular disease, and the fact that most first-line and some second-line therapies don't require the use of ritonavir, I believe that 9471 has the potential to be the preferred CCR5 antagonist for first- and second-line regimens on its own and potentially as a component of fixed-dose combinations.

Now moving to our 11beta-HSD1 compound, Incyte 13739, a potential treatment for Type 2 diabetes. We have completed the single-dose escalation portion of the Phase I trial and the multiple-dose escalation portion is ongoing. Assuming acceptable results are obtained, we plan to initiate two proof-of-concept studies late this year and early next year. The first study will be a fat biopsy trial in obese subjects to confirm that 13739 inhibits the HSD1 enzyme in adipose tissue, which is a critical tissue for the maintenance of metabolic control, and top-line data from this study is on track for early next year.

The second study will be a one-month Phase IIa trial in Type 2 diabetics. In this study, we use a highly-sensitive study technique, referred to as unindividualized insulin clamp, to assess the impact of 13739 on glucose production and glucose utilization.

In parallel with moving 13739 forward, we're also advancing a backup compound. As we do in all of our programs, including HSD1, we have created a large portfolio of proprietary compounds with excellent potency and selectivity, increasing both the probability of success of the overall program, as well as its value to prospective alliance partners. You may recall from our last conference call that HSD1 converts the biologically inactive steroid cortisone into the potent biologically active hormone, cortisol. Cortisol elevates blood glucose levels by increasing glucose production in the liver and by inhibiting the uptake and disposal of glucose in muscle and adipose issue, essentially acting as an antagonist of the normal action of insulin. It is believed to significantly contribute to insulin resistance in Type II diabetes. By selectively inhibiting NSD1 and reducing the level of cortisol in metabolically important tissues, which our inhibitors do in multiple animal models, we believe 13739 could offer a new approach to treating Type II diabetes, as well as allied conditions, such dyslipidemia, atherosclerosis and coronary heart disease.

To finish up, as I have stated in earlier calls, our goal was to file six INDs in the course of this year and the very early part of 2007. As you heard today, we'll file four INDs this year and two more are scheduled for the first few months of '07; in total, six INDs within 15 months, which is, to my knowledge, unprecedented productivity for a company of our size. As a result of this progress, we will have multiple Phase I and Phase II trials underway in 2007. Clinical results that we expect to obtain for the remainder of this year and in 2007 include biomarker data and preliminary data on treatment response rates for the Sheddase inhibitor Incyte 7839; viral load reduction and further safety data from the Phase IIa trial for our CCR5 antagonist Incyte 9471; proof of concept data from a fat biopsy study and preliminary efficacy data from a one-month plant study in Type II diabetics for Incyte 13739, our most advanced 11beta-HSD1 compound; possibly, proof-of-concept data for our two new programs in oncology and inflammation.

And with that, I will turn the call over to Dave, and after his remarks, we will open it up for Q&A.

Thanks, Paul, and good morning everybody. I will begin this morning by reviewing the Company's recent convertible note refinancing.

In late September, we closed our private placement of $151.8 million aggregate principal amount of convertible senior notes which resulted in proceeds of $111.9 million. The new senior notes have terms almost identical to our current 3.5 convertible subordinated notes. They bear interest at 3.5%, mature in February 2011, are convertible into our common stock at $11.22 per share and are callable beginning in February of 2007.

In October, we used $92.7 million of the proceeds to redeem all of the outstanding 5.5% convertible subordinated notes, including accrued interest, which were due in February '07.

I believe this refinancing accomplishes several important objectives. It eliminated the overhang of the 5.5% convertible subordinated notes and gave us another year of cash. Our cash run rate now extends into early 2010. Because the terms of the new senior notes are substantially identical to the current 3.5% notes, we were able to achieve an attractive conversion premium, and the vast majority of our convertible notes are callable beginning in February 2007, which gives us a lot of flexibility.

Now moving to our cash use in 2006, we have used $66.2 million of cash from operations so far this year. Included in the cash use for operations is a $3.4 million payment made in June as final settlement litigation of Invitrogen Corporation related to our discontinued genomics information business. Despite this payment, we are reducing our 2006 cash use guidance from a range of $88 to $95 million to a range of $85 to $90 million. This reduction is driven primarily by increased interest income, and to a lesser extent, operating expenses that are projected to be at the lower and of the ranges.

Our cash use guidance excludes any in-license or purchase of products, any funds received from the Pfizer collaboration and any activity related to our strategic investments.

As I have noted in the past, our cash used and our R&D expense can bury from quarter to quarter, depending upon the timing of our clinical activities.

The final areas I would like to highlight this morning are interest income and interest expense. Our interest income for the nine months ended September 30, 2006 was $11.3 million. As a result of higher average cash balances and higher yields in our cash and investment portfolio, we are increasing our interest income guidance from a previous range of $11 to $12 million to a range of $14 to $15 million.

In addition, due to the 3.5% to senior note issuance, we're increasing our interest expense guidance from $16 million to $17.8 million. This is a result of the non-cash amortization of the new notes' original issue discount. We're amortizing that discount using the effective interest method over the life of the notes.

In conclusion, I believe with our successful refinancing, we continue to be in a strong financial position with a cash run rate that now extends into early 2010. This financial strength allows us to make the appropriate level of investments to continue to advance our discovery and development pipeline.

And with that, I will turn the call back over to Paul.

Thanks, Dave. Operator, would you now please open the call for questions?

(OPERATOR INSTRUCTIONS). Thomas Wei, Piper Jaffray.

I just had a couple of questions here. On the CCR5 inhibitor, what toxicities did you see in the healthy volunteer study?

We haven't seen much of anything. You might want to comment on that, Rich. It's a pretty well-tolerated compound.

Yes, it has been very well tolerated. The doses that we're using -- we haven't just continued to try dose-escalate to the point that we see toxicity because we're already achieving plasma levels in excess of where we believe the other drugs are being studied in terms of their relationship to covering the virus.

When you talk about a very long half-life, are you able to quantify that for us?

We could. Do you want to get into that, Rich?

Sure. With the dose that we're currently studying now in the HIV-infected patients, the measured half-life was 60 hours, or about 2.5 days. That compares favorably with the Pfizer compound, which I believe is less than 12 hours, and the Schering compound, which is around 24 hours.

Thanks, that's very helpful. And then just lastly, a question for Dave on the cash guidance that you had given. Do you think that the current cash balances will last through, if I heard correctly, the first half of 2010?

Yes.

Can you help us understand whether or not that assumes that you continue your investment in pre-clinical research at about the same levels that you're doing right now, or does that assume that some of that starts winding down, given the number of compounds that are going into the clinic? And how many full-scale clinical programs does that support?

I think from an infrastructures perspective, we're assuming that the infrastructure costs remain the same, so we're not going to increase our investment in drug discovery of and pre-clinical activity, but we'll keep it steady-state. And the guidance really includes sort of a naturalized run rate, assuming a reasonable support for development programs. As you know, as you get out into the out years, it gets more difficult to predict. But if you look at our current run rate and sort of project where our pipeline could be, we think early '010 is a reasonable estimate.

Thanks.

Sapna Srivastava, Morgan Stanley.

This is actually [Van] (indiscernible) calling in for Sapna. I have two questions. First, I think earlier you mentioned a couple of conference calls ago that, as you see proof-of-concept data with some of these larger indications, that you would look to partner those compounds. So is that something that we should be seeing over this next year? Is that still the strategy.

That's certainly the strategy that we continue to believe is the wisest one for us. For example, the HSD1 program, should we successfully move that through proof-of-concept, would be one that clearly would require partners to help us to maximize the value and likelihood of commercial success of that program, also to bring the expenses that would be incurred by trying to do it ourselves.

So, it's still after proof-of-concept data?

It would be sometime after proof-of-concept data, because we think the value of the program obviously moves up substantially if you have proof-of-concept. It would not necessarily mean that the instant we had proof of concept, that we would license it, but we would evaluate our overall portfolio, our burn, et cetera and talk to prospective partners and see if it all came together in a way that made sense. We continually talk to people about some of these programs anyway, the same as we did with the CCR2 program. We had discussions with potential partners on the CCR2 program for I'd say 18 months before the deal was consummated. So it's definitely still the way we plan to go about things for the larger indications.

And then when will we see any data from any of the trials that you have run so far for the early Phase I data? Will we see it at any medical meetings?

That, and at our conferences, we would -- but, for example in the next six months -- let me just take you through this -- we would be -- somewhere, we would be presenting our viral load safety and PK data for the CCR5 compound 9471. We would be in a position in the next six months to describe the results of the fat biopsy studies, and hopefully, the one-month clamp study data for 13739, the HSD1 inhibitor. We would describe -- we would be presenting Phase Ib-IIa data for the Sheddase inhibitor, 7839; we would have Phase I results for 8696 for multiple sclerosis; and for our backup HIV CCR5 compound, 15050, that would be in the next six months. Before the end of 2007, the two programs, which we haven't described in any detail, but I plan to describe very early in 2007 assuming they stay on track and they look like they are, by very early, it would be in January that I would be driving those programs -- both of those programs have I think a good very good potential to show proof-of-concept data, which we would have before the end of next year. So over the next six months, there's quite a bit of which will be described either at conferences and/or at medical presentations. And by the end of 2007, there will be even more I think interesting data for you to hear about.

Thanks a lot.

Richard Smith, JP Morgan.

Just a bit of clarification, going back to the CCR5 product. The half-life you say is 60 hours. Is that at a dose lower than the Pfizer and Schering compounds?

It's at a dose lower than the Pfizer, and I'm still not exactly sure what the doses of the Schering compound are eventually going to be because, as you know, they started out and had to go back and raise their doses.

So we would say, we don't know what their doses would be were they to go back into patients without ritonavir boosting.

And could you remind me how it's metabolized, your compound?

Yes, it's primarily [cleared] in the liver through CYP3A4 metabolism.

Okay. Alright, that's fine. Thank you.

(OPERATOR INSTRUCTIONS). Annabel Samimy, UBS.

Just a quick question on the Sheddase inhibitor. I think we were supposed to see some ECD data before year end on the Sheddase inhibitor. Is that is what has been pushed off to the first quarter, or was it the full data from the Phase I-II that was pushed off? And have you seen any therapeutic activity in any of the cohorts yet?

What I would like to do there is to actually complete this Ib-IIa study before we talk about the safety and response rates. The ECD data, we may well still present that in early January. We do have some data, I think it's encouraging, and we're still debating whether or not we want to do that or whether we want to wait until the whole study is over until we have more data in HER2 positive high shedders with breast cancer. But, the odds are, we will present the data in early January.

Okay, great. And the one other question I had on the CCR5, you had mentioned that it could be attractive for a potential combination with other once-daily therapies right now. Would that be literally combination pills that you're thinking? Is that possible?

I think it certainly would be possible. And I would also say that I am encouraged -- we have to see the data, but at this point, having had Schering drop out of naives because they couldn't show comparability to Sustiva and two nukes. But have of the Pfizer be stating that they plan to file their IND before you year-end -- I mean their NDA before year-end, and not have to stop their study or made any statements that they weren't seeing data that looked at least as good as Sustiva plus two notes nukes makes me believe that their data must look reasonably good.

Okay, great. Thank you.

Adam Cutler, JMP Securities.

I'm wondering if you can just give us an update on where things stand with Pfizer on the CCR2 collaboration, and when we might hear something either in terms of a go/no-go decision on advancing those compounds.

I could give you exact dates for any of that, as you know. In these kinds of collaborations, the other Company is the company that has to make that decision. We have some input into it. What I can tell you is that we are encouraged by the amount of activity that is going on at Pfizer and their commitment to the program. They are evaluating our compounds in multiple models and they are still in the process of determining what they're going to do in the indications that we had done our Phase IIa studies in. I cannot tell you much more than that. I would doubt at this late date this year that we will see any kind of a milestone, but I would hope and actually be somewhat disappointed if we don't see at least one next year.

Okay. So I guess to ask it maybe another way, if things advance, then we'll know because you'll receive a milestone payment. If the lead compounds -- if they decide not to advance the lead compounds, but instead to go to the backups, would we ever hear that? Or, would it just wait for milestones on the backups in order for us to know anything?

I think that's the way that the contract is written, that that's what happened, and I think what you stated is the way it would be.

Okay, thanks. One other question if I may. In the past, you've given guidance on what revenue, R&D, G&A would be for the year. I'm wondering if you might be able to just update us on that?

Yes, none of that actually has changed, Adam, so we did talk about that in the press release. So our R&D guidance -- I'll take a look here -- is $82 to $88 million for the year, and G&A I believe is $13 to $15 million.

And that's inclusive of stock options?

That excludes the non-cash stock option expense.

Okay. And then revenues --?

Revenue guidance is also the same -- $20 to $25 million.

Okay. So obviously then, the revenues from this -- from the third quarter are not -- we can't really use that as kind of a run rate going forward?

That's not an unreasonable run rate. They do tend to vary, depending on the timing of the last remaining genomic information business revenue, but the substantial portion of our revenue now is the amortization of the up-front fee from Pfizer. So that is relatively predictable. We're recognizing that over a two-year period.

Okay, thanks.

(OPERATOR INSTRUCTIONS). David [Bleustein], [Sutton Brook] Capital.

I know some of this may have been reviewed in the past and I think I may have forgotten, but with respect to the Sheddase inhibitor, a couple of quick questions. Number one, are you going to be screening for high shedders, or will you be screening for high shedders? Are you going to or have you complexed this with another product, whether it's Herceptin or another antibody either going forward or in the past? And then I guess the last question -- on the mechanism side, to what extent do you feel HER3 is either -- the signal from HER3 is perfected from a mechanism (inaudible)? And I have one last question after that, but if I could just ask on Sheddase first.

I will answer the last one, and then I will ask Rich to talk about the first two. We have good pre-clinical evidence that we do shut down HER3, which is Heregulin-activated. And we think that is a very, very important distinguishing feature from (technical difficulty) good data showing that we can. We are actually measuring Amphiregulin levels and Heregulin levels in some of the patients in the Phase Ib-IIa study. So we also have that biomarker data. And it also points very strongly to the logic of combination therapy with Herceptin or with (indiscernible) and other agents which affect other HER2 or HER1. I will turn it over to Rich to address the more clinically-oriented questions that you asked.

Your first question is whether we're screening for ECD levels. The answer is, we are not excluding people who have HER2-positive breast cancer that don't have elevated ECD levels, although we're certainly measured the ECD levels before the start of therapy. And one of the reasons for that is that we also believe that our drug will work in patients with HER-positive breast cancer that don't have elevated EC. levels. There is shedding of the ECD going on, even in patients whose ECD levels are not above a threshold where it's considered to be significantly elevated. Approximately 40% to 50% of the patients who have HER2-positive breast cancer will have elevated ECD levels. So we certainly don't those patients.

Your second question was whether we're currently or in the future going to be studying our drug in combination with other drugs that also affect the EGFR pathways. Our current study is a monotherapy study to determine the maximally-tolerated dose and the effect on surrogate markers and potential response rates as monotherapy simply to see what that drug does by itself. But going forward, our plan is to also look at it in combination with a number of EGFR-targeted therapies, including Herceptin, assuming lapatanib gets approved; lapatanib, as well as some of the other EGFR1-targeted therapies.

If I could ask just one final question. Your diabetes program -- remind me again why this would not predispose to any type of Addison's situation?

What this mechanism does is it takes out the intracellular conversion of cortisone to cortisol within specific tissue types that express high levels of this enzyme. The actual cortisol levels, which come from the adrenal glands, remain unaffected, and we have dated to support that. So you don't get Addison's disease, what you get is a specific inhibition of conversion of inactive cortisone to cortisol in tissues like fat, liver and muscle.

Thank you.

We show no further questions in the queue at this time. I'd like to turn the floor back over to management for any closing remarks.

Thank you. Thanks for joining us on today's call. We look forward to keeping you informed of our progress, and I think from today's presentation, you should have a feeling that there is quite a bit of proof-of-concept data that's due to come out in the next six to 12 months. With that, operator, let's conclude the call.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.