英賽德 (INCY) 2009 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Incyte Corporation third-quarter 2009 financial results. 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. Pamela Murphy, Vice President of Investor Relations and Communications. Thank you. Ms. Murphy, you may now begin.

Thank you and good morning, everyone. On the call today are Paul Friedman, Incyte's President and Chief Executive Officer; Dave Hastings, Executive Vice President and Chief Financial Officer; Rich Levy, Executive Vice President and Chief Drug Development and Medical Officer; and Pat Andrews, Executive Vice President and Chief Commercial Officer. To begin, Paul will provide a review of our lead programs and Dave will follow with a description of our recent financing and third-quarter financial results and we will then open up the call for Q&A.

Before beginning, we would like to remind you that some of the statements made during this call today including statements regarding our plans and expectations for our drug development programs including timing of our clinical trials, regulatory submissions, and the potential safety and efficacy of our compounds as well as expected financial results and guidance are forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially including those described in our Form 10-Q for the quarter ended September 30, 2009 from time to time in our SEC documents. Paul?

Good morning. For our lead JAK1/2 INCB18424, we are currently enrolling patients in the two 03 trials, COMFORT-I in the United States, Canada and Australia, and COMFORT-II in Europe. Our objective remains to complete enrollment late last year or early next and this will keep us on track for filing the new drug application in late 2010 or early 2011.

As the press release stated, we have three oral presentations at ASH this year. Dr. Verstovsek from M.D. Anderson has two of these and will present results from the Phase II trial in patients with advanced polycythemia vera and essential thrombocythemia as well as give an update on results from the ongoing Phase II trial in patients with myelofibrosis.

Additionally, Dr. Ravandi, also from M.D. Anderson, will be presenting results from an investigator-sponsored IND for IND for 18424 being used as monotherapy in patients with relapsed or refractory leukemias. M.D. Anderson was interested in testing 424 in these patients based on evidence that the JAK stat signaling pathway plays a key role in hematopoietic malignancies and that trial began in May of 2008 and is still recruiting.

Given that these treatment refractory patients tend to have very poor outcomes as well as the published data which indicate that JAKs may be centrally involved in this setting, we were supportive of M.D. Anderson's desire to evaluate 424 in leukemias and look forward to seeing these early results presented at ASH.

Another new program for 424 that we expect to initiate next year evolved from a request from the Children's Oncology Group at the NCI to evaluate 424 in children with relapsed or refractory solid tumors, hematologic malignancies, and myeloproliferative diseases. Their interest came from evidence that JAK stat -- signaling his involved in a variety of cancers as well as recent publications documenting that a percentage of children with acute lymphoblastic leukemia, particularly those with poor prognosis carry JAK mutations. Therefore, the Children's Oncology Group researchers believe JAK inhibitors may be effective treatments in high risk pediatric cancers.

As is the case with most such first inpatient studies, the primary objective of this trial will be to obtain dose-limiting toxicity data and establish that 424 can be used in children. Obviously we will be looking for any objective responses in their tumors as well. Based on the NCI's current timelines, we expect to see results in the middle of 2011.

Now moving on to the topical formulation of 424, as you know in September we announced positive topline results from our first three month Phase IIb trial in psoriasis. We shared these results with a number of leading KOLs and dermatologists and were encouraged by their feedback. Both groups indicated that the mechanism and profile for topical 424 looked promising. Of particular importance to these physicians is 424's potential to provide a rapid onset of action, meaningful advantages in terms of safety, tolerability, and duration of dosing, and possible application on the face and other sensitive areas without the tolerability concerns that significantly limit or preclude the use of steroids or vitamin D treatments on these areas.

In addition, these results have generated a good deal of interest from potential partners and we intend to initiate discussions with these companies to determine whether a partner for this program could make sense.

For our second oral JAK1/2 inhibitor INCB28050, we continued to enroll rheumatoid arthritis patients into a six-month Phase II dose ranging trial that we began this past summer. This study involves 100 such patients who have had inadequate responses to our DMARD treatment. We expect to have three-month results late in the first half of 2010 and six-month results in the second half, which would mean we could present these results at ACR next year.

In regard to our 11beta-HSD1 program, in October we presented results from the Phase IIb trial at the European Academy for the study of diabetes, the EASD annual meeting. These results were initially presented during a poster session at the ADA annual meeting in June and demonstrated that 13739 significantly improved glycemic control and total cholesterol levels. The EASD oral presentation included subgroup analyses of total and LDL cholesterol and triglycerides as well as a description of body weight changes, all of which revealed further positive effects of 739 treatment.

As we have said multiple times in the past, this program is not one we will advance further on our own. We are pursuing partnership opportunities. And I should add here that as we've also said it before, in addition to partnership discussions for 739, we are in active and productive discussions for our JAK inhibitor programs. For those, while it remains our intent to keep the US rights to 424 for oncology, we believe a strong rest of world partner could help us rapidly optimize the MPD opportunity as well as improve our financial position.

For the JAK inflammation program, we would consider a broad global licensing deal or we could opt to do a deal in which we share in downstream economics.

With that, I will turn the call over to Dave to run through our financial situation.

Thanks, Paul. Good morning, everybody. I would like to start this morning by describing our recent financing, the changes to our fourth-quarter financial guidance as a result of that financing, and then finish by highlighting a couple areas in our third-quarter financial results.

On September 30, we completed our dual tranche offering a $400 million of 4.75% convertible senior notes due in 2015 and a follow-on equity offering of 20.7 million in common shares. Our note offering resulted in net proceeds of $388 million, while our equity offering resulted in net proceeds of over $132 million. We intend to use the proceeds from the note offering to reduce or otherwise retire our existing 2011 convertible notes. In fact, we have retired a little over $212 million of these notes thus far.

In addition as anticipated, we placed $56 million of cash in an escrow account reserved for the first three years of interest payments on these new notes. We intend to use the proceeds from the equity offering for general corporate purposes including continuing our investments in our advancing pipeline, particularly our JAK inhibitor programs.

As a result of the financing, we have increased our interest expense guidance from $26 million to $33 million in 2009. The components of the increase are as follows. $5.3 million of non-cash amortization of debt discount on our new notes as a result of $148 million debt discount we recorded pursuant to provisions of the latest guidance on derivative accounting EITF07-5. We will amortize that non-cash discount over the life of notes.

In addition, we expect $4.8 million of interest expense on the new notes in the fourth quarter. Now these increases are partially offset by a $1.9 million reduction of interest expense as a result of the retirement of $212 million of our existing 2011 notes and a $1.2 million reduction in amortization of debt discounts as a result of the retirement of $86 million of the existing 2011 senior notes.

Also because of the accounting guidance mentioned above until we get shareholder approval to increase the number of authorized shares of common stock, we will record a mark-to-market non-cash adjustment on the $148 million derivative liability that we recorded upon issuance of our new notes. Because this variable mark-to-market adjustment is tied to our share price, it could result in a significant non-cash gain or charge in the fourth quarter.

A special meeting of stockholders is being held on November 24 to approve an increase in the number of authorized shares.

In terms of our third-quarter operating results, we ended the quarter with $395 million in unrestricted cash and marketable securities. So far we have used $103 million in cash and our cash use guidance of between $122 million and $128 million remains unchanged although do we do expect to be on the upper end of that range in 2009.

Our 2009 cash use and cash use guidance does not include amounts raised in our dual tranche offering, amounts used to retire our existing 2011 notes, or the amount we placed in escrow for the three years of interest payments on those notes.

In terms of our third-quarter and year-to-date net loss, it is important to note it includes a non-cash charge of $5.4 million or $0.05 per share. This charge primarily relates to a portion of our deferred offering costs and debt discount on our existing 2011 notes that we retired at the end of the quarter. As a reminder, of the $212 million that we have retired so far, $186 million was completed in the third quarter and $26 million has been completed so far in the fourth quarter.

We are gratified that we successfully completed our recapitalization as we have strengthened our balance sheet and removed a significant financial overhang. This is critical to our ability to continue to advance our pipeline and in our negotiations with potential partners.

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

Operator, let's just move ahead and open the call to questions, please.

(Operator Instructions) Tom Russo, Robert W. Baird.

Good morning. I'm guessing you probably won't want to set any explicit guidance on timing for partnership, but could you characterize if any of the ones that people focus most on including the 424 OUS diabetes inflammation have meaningfully advanced in the last three months and which if any of those need additional clinical data or new information in order to get to something mutually satisfactory?

I would say they all have advanced substantially in the last few months and for none of them do I at this point in time anticipate we need any further clinical data to consummate a partnership.

Okay, do the potential partners for 424 already have the data that you referred to for presentation at ASH? Have they had a chance to look at it?

I think in one form or another they have seen it, yes.

Okay, and in terms of the enrollment for 424, it sounds like everything is on track. Would you be able to put any percent to the enrollment status at this point?

No, I wouldn't do that, but what I can tell you is that we have projection curves that keep us on track to enroll give or take a few weeks within the frame of what we anticipated and we're doing just fine in both studies.

Okay, then just switching real quick to a financial question, in terms of modeling, how should we think about the timing or the pace for paying off the remainder of the old converts that are due in 2011? I know it might be lumpy, but is there -- it looks like you paid maybe $25 million in the last month or so and I'm just trying to figure out if there is anything that you can say to help us think about that going forward?

Yes, Tom, I think we have a lot of optionality there. As you know, all the notes are callable, but as we indicated in today's press release, we have retired a fair amount and we will continue to do that, but I think you said it well. It is lumpy and difficult to predict, but again, we are focused on using the proceeds from a new note offering to continue to reduce that balance.

Okay, thanks. I'll hop out now.

Eun Yang, Jefferies & Co.

Thanks very much. Paul, you mentioned that 18424, you are looking for ex-US partners, particularly oncology. Does that imply that it's the right oncology rights that you would like to keep in the US? Is that only specific in myelofibrosis or it depends on the cancer types?

I think in general, what we have tried to do with all potential partners is retain oncology rights for 424, not just for myelofibrosis. That seems to be going pretty well.

Sure, and then 424, understanding that for psoriasis indication, it's a topical formulation, but is there any plan that you would actually try 28050 for a topical formulation and then kind of package those two indications together and present it to potential partners?

Yes, that would be cleaner if it were possible to do. The issue is the structural differences between 050 and 424 lead to very different fluxes through the skin. 424 has a certain functional group which gives very good skin flux. And 050 is a more polar compound and has less skin flux. So we were less optimistic that we could make an effective topical with 050, which is the reason we haven't done that.

Great, thank you.

Corey Kasimov, JPMorgan.

Good morning, guys. Thanks for taking the questions. I have two of them for you. First on the PV, ET, just heading into ASH, wondering if you could set expectations a little bit for the data we are going to see relative to the MF data you presented in the past. Really here in terms of how we should be interpreting endpoints, all the same or any key differences?

And then also within that PV, ET arena, if you could discuss the market opportunity there, and then I have a follow-up on 050.

So I'm going to let Rich answer the first part of the question. The second part of the question is we have presented in the past the prevalence of PV and ET relative to myelofibrosis as best you can estimate with the data that's out there. And somewhere between 5 and 7 times as many patients have PV and ET each than myelofibrosis. I think that's a range that is not unreasonable to give you.

About maybe 25% or so of each of those patient groups when they get farther advanced have the same symptoms. It's very significant symptoms that myelofibrosis patients have. They have splenomegaly and the difference is they don't have fibrosis in their marrow and they have one or more of the blood cell counts elevated. In polycythemia vera, it's the red count. In essential thrombocythemia, it's the platelet count.

So the group of patients that we're currently studying are for more advanced patients and exactly how we -- what we would have for endpoints in pivotal trials requires discussion with regulatory agencies which we are planning.

But let me turn it over to Rich to describe to you what you might be expected to see presented at ASH with respect to data from the ongoing Phase II study. Rich?

Thanks, Paul. So as Paul said, there's some key differences between PV and ET and myelofibrosis in terms of what you would want to be accomplishing. So remember in myelofibrosis, oftentimes the counts are low because the bone marrow is no longer working very well, whereas if in PV and ET, the problem is that the counts are high. And it can be more than just the red cell that's high in PV. You can have high platelets and high white count there too. In ET, you generally by definition don't have a high level of hematocrit, but you would have high platelets and you may have high white cells.

So one of the things you are going to be looking for is to bring those high counts down into the normal range. The second thing is that you do have some patients who have some significant splenomegaly in PV and ET. As these are advanced patients, you will see data on that as well, but that's not the key finding is an important a component of improvement to the patient as you see in MF where the spleens can be absolutely massive and really debilitating.

The third aspect is the symptoms themselves and that is fairly similar to myelofibrosis in that patients do tend to have a lot of the same symptoms. One that is really key in psoriasis is pruritus or itching and it can be --

In PV.

What did I say?

Psoriasis.

It begins with the letter p -- in PV is the itching, which can be really severe. People can rate them 10 on a scale of 10 and so just as we see improvements in pruritus or itching in MF patients, in PV that would be a key thing to look at.

But also other symptoms as well that are overlapping. So I think those are the key areas that you should be looking for when we present the data at ASH.

Okay, that's helpful, and then the follow-up on 050, regarding the ongoing Phase II, are there still plans to conduct an early interim look at the data that you're going to keep proprietary to share with partners? And if so, is it safe to assume that no news would be good news on that front?

Yes, there won't be any news. And if we keep the study going, I would think that would be good news. We are planning to do that some time in the first quarter.

Okay, thanks for taking the questions.

Joshua Schimmer, Leerink Swann.

Thanks for taking the questions. Do you expect the Phase II ASH data of PV and ET to be sufficient to begin regulatory discussions? And do you feel that the path you went through for the MF SPA in any way facilitates those discussions for PV and ET?

Yes, I think the data are sufficient to have discussions with FDA, and as Paul said, we do plan on meeting with them probably sometime early next year.

In terms of the endpoints, the endpoints I believe will be different than in MF just as I talked about a few minutes ago in terms of the objectives, but I think we did learn a lot about how FDA thinks about these things, which are different than their typical cancer studies and the accommodations that we've reached through the FDA process can be applied to the thinking of how we would approach PV and ET.

And you will be looking for an SPA in those indications as well?

It's possible. We haven't decided whether to go the SPA route on a secondary indication as that may not be as critical a decision as it was to get the drugs to the market in the first place. The first meeting that we are requesting is not related to an SPA. It's kind of the pre-SPA stage to just have a first level of discussions and based on that, we would decide whether or not the SPA makes sense or not.

Okay, great. Then can you give us a quick update on the status and timelines of the QT and carcinogenicity studies for 424 and 050? Thanks.

So the definitive QTc study has started -- you get different doses and then you get a positive and a negative control each a week apart and so we are into the dosing phase of that, but then the actual analysis of all the ECGs takes quite a bit of time. So we don't expect to have results until sometime in the first quarter of next year.

With respect to the carcinogenicity studies, we are doing two studies. One is a transgenic mouse model and that study has begun and we will have results in time for the initial filing. The rat carcinogenicity study, which is a traditional two-year study, per agreement with revelatory authorities is not required for initial approval. Those studies have also begun but will not have data until after the registration files are in and likely approved.

Okay, great. Thanks very much.

Ziad Bakri, Cowen & Co.

My questions have been answered, thanks.

Liisa Bayko, JMP Securities.

Hi, guys. I am just wondering if you can give us a sense of what we might expect from the updated data from the Phase II trial at ASH. I know that you have been continuing patients on therapy and is there anything different that you've been observing as patients are on therapy longer? Thanks.

Patients continue to do well. We haven't made -- where the abstract is in and the presentation will be in line with what's in the abstract, in terms of the actual content of what topics we are going to cover in depth hasn't been fully decided yet. It's Dr. Verstovsek's presentation and those are his decisions to make and we just haven't reached that point. But I think everything will be in line with the fact the patients are still continuing to do well on drug.

Now some patients 2 1/2 years out, our average exposure is now about a year and a half on drug, among the 150 or so patients that were enrolled in the study. Spleens continue to be smaller. Symptoms continue to be getting better and the drug continues to be well tolerated.

With patients on treatment longer, are you starting to see any signals that there is a change in the underlying disease?

I'm going to leave that for the final presentations. I think there may very well be some positive interesting data that we are going to present, but I don't want to try to get into it now.

Okay, fair enough. How many patients of the 150 that started in this trial, how many are still on treatment?

I don't have the daily numbers, but the last I looked it was around the 115.

Okay. And then if you could just discuss a little bit about the breast cancer trial, you are going to have data for that coming up. How should we think about it and what are the kind of data points that are going to be presented at San Antonio? Then I will step back in the queue, thanks.

So we're going to update people on the status of p95 positive patients where they are getting Herceptin plus 7839, the sheddase inhibitor. We have a handful more patients than we had the last time we presented. Some of those are out far enough that you can add them to the data list in trying to determine whether we are doing better with p95 positive patients than you would expect them to be doing with Herceptin alone. And there may be several others who are in the study, but who haven't been on drug long enough to be able to add their responses to the overall response rate. I think that's the kind of data we are going to see.

Thank you.

(Operator Instructions) Lucy Lu, Citigroup.

Thank you, just a general question for you. Partnerships for your inflammation program, diabetes, as well as MS for Europe, they were one of the ways you were going to retire the debt and fix your balance sheet in 2009. Now that you have raised a lot of money and enough to retire the debt, I'm just wondering is that still a corporate priority for Incyte? And how has the fact that you raised money changed the partnership priorities? Thank you.

Forming the partnerships is in and of itself a priority and just enumerate the different programs, I think it will become clear why we believe that a strong partner ex-US for myeloproliferative diseases with established sales force experience getting reimbursement in Europe would allow for a stronger launch, a stronger ability to get appropriate reimbursement and overall a higher NPV.

So we have always had that aim, whether or not that was going to be the pot of money that we primarily used to retire the debt depended on what else we did with respect to financing. But we've done these things in parallel.

With respect to inflammation, when you look at a Company like us, both the infrastructure we have and the amount of money that we can spend, and then you look at the opportunities that exist in parallel to be investigated in inflammation, Crohn's disease, ankylosing spondylitis, juvenile rheumatoid arthritis, the list gets pretty long. And while RA is the most prominent one, there are quite a few others that optimally you would like to be looking at in a quasi-parallel fashion.

We just can't do that by ourselves and we see that Pfizer, like the 10,000 pound gorilla, they can do that. And so to remain temporarily competitive, if we find the right relationship with a partner, we think that that would be a more ideal way to fly.

With respect to diabetes, we've always said that we are not going to take forward primary-care indications like diabetes into pivotal trials and then try to launch, and so we've always said we were going to get a partner there as well.

So there are I think very compelling reasons apart from just having money to retire the debt which have held us to propelled us to aggressively seek partnerships and we continue to do that and those discussions are and have been very fruitful ones. And when we get there, we will announce it to the world.

Paul, I don't really -- I don't mean to push you, just really trying to understand a little bit better, I think a lot of investors had been expecting one or two deals for Incyte this year because you guys have so many opportunities. I guess I am just trying to understand a bit better, but have been some of the gating factors?

Well, the year is not over yet and the fact that we've raised money I think has given us a significant amount of leverage in these negotiations that should be helpful in closing one or more deals. And there is really not much more I can tell you.

I would think that investors would not want us to willy-nilly sign a deal so we could announce a deal if we thought that with a little bit more back and forth deals could be optimized and just the fact that it takes awhile to get through contracts and committees.

All right, thank you very much.

Jeff Elliott, UBS Securities.

Great, thanks. Just to follow up a little bit on that, in terms of some of the programs that you had put on hold early in the year like CMAT and IDO program, where do you have to get from a capital perspective to restart those or should we view those as inactive?

Well, I think we probably have capital now where if we choose to we could start either or both of those programs. So we may choose to do that.

But you are not at this point?

We are doing work in one of the two.

Okay, great. Thanks.

(Operator Instructions). Thank you, there are no further questions. I would like to hand the floor back over to management for any closing comments.

Okay, well thank you for your attention and your questions and I think that our ASH presentations are going to be very interesting ones. We hope that we will have something to say on the partnership front in the very near future, but again until those things are over, they are not over. And I appreciate your understanding on that part.

We look forward to speaking with you again soon. With that, we will end the call. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.