英賽德 (INCY) 2010 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Incyte Corporation's second-quarter 2010 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 Investor Relations and Communications. Thank you, Ms. Murphy, you may begin.

Good morning and thank you for joining us. On the call today are Paul Friedman, Incyte's President and Chief Executive Officer; David Hastings, Executive Vice President Chief Financial Officer; Rich Levy, Executive Vice President, Chief Development Officer and Medical Officer; and Pat Andrews, Executive Vice President, Chief Commercial Officer.

To begin Paul will review recent developments at Incyte and Dave will follow with a discussion of our second-quarter financial results. 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 the call today including statements regarding our plans and expectations for our drug development programs, including the timing of our clinical trials, regulatory submissions, and the potential safety and efficacy of our compounds, as well as our 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 March 31, 2010, and from time to time in our SEC documents. Paul?

Okay. Thanks, Pam. Good morning to everyone. Our most advanced clinical programs are moving forward as planned, our news flow for later this year is strong, and we are making good progress with our earlier stage programs.

We announced today our decision to exercise the option to co-develop Incyte 28050 with Lily for rheumatoid arthritis. Based on the Phase II results we have seen so far, we believe 050 represents a major commercial opportunity and this decision dramatically expands our potential financial upside. You will remember when we explained our rationale for picking Lily, one of the major drivers was this opportunity. So with the results that we have seen we feel completely comfortable in making this opt-in decision.

As a result of this decision we plan to fund 30% of future development costs up to regulatory approval for 050 in RA and our tiered royalty rate range would increase from up to 20% to up to the high 20%s.

During our first call in May I described positive 12-week ACR scores for 050 in what was then an ongoing six-month Phase II dose ranging trial. All the patients have now completed the entire trial. Obviously, we have seen the data and we look forward to sharing these results with you in November at the American College of Rheumatology meetings.

Just to remind you, this Phase II trial included RA patients who were considered to be inadequately controlled by any disease-modifying anti-rheumatic drug therapy including patients previously treated with biologics. And we had a significant percentage of such patients. The positive results we have seen with 050 thus far, including again those patients treated with biologics, suggests that the compound has the scheduled to be a value for a broad range of RA patients.

The results also suggest that 050 may well provide advantages over existing DMARDs as well as other oral compounds and biologics currently in development including, but not limited to, better tolerability and to once-a-day oral dosing. The protocol for the upcoming Phase IIb trial is just about final and the study is on track to begin this fall.

Now switching to Incyte 18424, our most advanced JAK1/JAK2 inhibitor for oncology, both Phase III trials in myelofibrosis patients have been fully enrolled for some time and the trials are progressing as planned. Release of the top-line results for the US trial, COMFORT-I, is still expected in December with full results for both COMFORT-I and the European trial COMFORT-II, for which Novartis now has responsibility. Results from both those trials are likely to be formally presented at ASCO.

Our plans to file the NDA for 424 in the first half of 2011 remained unchanged and key initiatives, such as manufacturing, packaging, labeling, and distribution, are already underway to support this timeline.

We are continuing to prepare for the potential commercialization of 424. We have completed a significant amount of research into the treatment practices for myelofibrosis and we have a good understanding of the educational needs around the disease and its pathogenesis.

We recently created appropriate educational materials, including a website, MPN, for myeloproliferative neoplasms, MPNconnect.org, for physicians, and print materials appearing in a number of hematology and oncology medical journals such as Blood and the JCI, the Journal of Clinical -- I am sorry, the Journal of Clinical Oncology. These efforts are currently directed to physicians and we intend to reach out more broadly within the MF community with additional educational initiatives and materials over the next year.

Now with respect to other indications for 424, we believe our discussions with the FDA regarding the requirements for approval in advanced polycythemia vera patients are progressing quite well and we know of no reason why we shouldn't be ready to begin the Phase III program in the fourth quarter.

The Children's Oncology Group has finalized their protocol for a dose-ranging Phase I/II trial to evaluate the safety and efficacy of 424 in children with relapsed or refractory solid tumors, leukemia, or myeloproliferative neoplasms. Trial is now posted on clintrials.gov and enrollment should begin shortly.

Moving to topical 424. We are continuing partnering discussions with a number of companies that believe JAK inhibition could represent an effective new approach for the treatment of mild to moderate psoriasis. And as we said before, while this is an area that we could develop on our own, because this would be our only dermatology product and because we have a lot going on in the oncology space and in other areas of inflammation, we are evaluating when and with whom it makes the most sense to partner.

Another of our oncology programs is Incyte 7839, the sheddase inhibitor being studied in breast cancer. Data from the emerging or the ongoing Phase II trial continue to demonstrate that the combination of 7839 and herceptin-based regimens with or with out docetaxel may be of value in p95 HER2 positive subsets, the subset of breast cancer patients. Prior to finalizing our plans for Phase III for this program we are also generating additional data in parallel to better define the expected rate of progression of p95 positive patients treated with herceptin-based regimens.

We have agreements in place to attain an extensive supply of tumor tissue samples from patients in whom response rates, progression-free survival, and overall survival are already known. This will allow us to more accurately quantify patient outcomes using different herceptin-containing regimens with p95 status and to adequately power the Phase III registration trial. This work is expected to be completed in the fourth quarter this year.

Once these steps are completed we will be ready to discuss the program with FDA, probably quite early in 2011. Our oral cMET inhibitor, Incyte 28060, now licensed to Novartis, has been in a dose-ranging Phase I/II trial that we continue to conduct in patients with solid tumors since January. We have evaluated several doses and thus far the compound has been well tolerated.

Lastly, for our oral indoleamine dioxygenase, or IDO, inhibitor, Incyte 24360, we recently initiated a Phase I/II trial in patients with solid tumors. Screening began in July and the first cohort of patients is expected to start receiving 24360 this month.

IDO1 -- there is also an IDO2 which we believe is much less relevant for anti-tumor activity -- mediates the catabolism of the essential amino acid tryptophan converting it to kynurenine within immune cells and in a broad spectrum of tumor cells. This catabolism of tryptophan results in the depletion of this essential amino acid and the creation of cell toxic metabolites, all of which lead to the inhibition of anti-tumor cell-mediated immune responses.

In a number of tumor types IDO1 expression has been clearly associated with poor clinical outcomes and decreased overall survival. Preclinically it has been showed that IDO inhibition dramatically increases the efficacy of various chemotherapeutic agents, such as platinum compounds, taxane derivatives, and cyclophosphamide, in controlling tumor growth. Together these results suggest that the IDO pathway is a key regulatory element response (technical difficulty) and maintenance of tumor-immune tolerance.

Our lead compound indeed has been shown to be effective in multiple mouse models of cancer and the reduced tumor growth appears to be dependent on a functional immune system. That is an important point and it's consistent with the proposed mechanism of action.

Now I am going to describe this program in significantly greater depth during one of our formal sell side presentations in September. In the interim we have been encouraged by the positive data that has been seen with the Bristol-Myers Squibb's monoclonal antibody, ipilimumab, in advanced melanoma patients which underscores the value of harnessing a patient's immune system for treating cancer.

With that I will turn the call over to Dave to run through the financials.

Thanks, Paul, and good morning, everybody. I will start my overview this morning by discussing our cash position and guidance.

We ended the second quarter with $422 million in cash and investments excluding $47 million remaining in an escrow account reserved for interest payments through October 2012 on the 4.75% convertible senior notes. So far our cash use this year has been $76 million. This amount excludes $183 million received from collaborators for milestones in upfront payments and $159 million used to redeem the remaining 3.5% convertible senior and subordinated notes.

Given our cash use to date, we are reducing our gross cash use guidance for the year from the previous range of $165 million to $175 million to a range of $160 million to $165 million. As always, this cash use guidance excludes actual or potential future milestones received from partners.

In terms of milestones, we recorded $33 million from our Lily and Pfizer collaborations in the second-quarter. Our milestones are recorded as revenue in full in the quarter in which they are earned and, therefore, they had a significantly favorable impact on our second-quarter results.

In terms of our operating expenses, our year-to-date R&D and SG&A expenses were $60 million and $13 million, respectively. As we have stated in the past, we expect variability in our spending in these areas and we are changing our 2010 guidance to reflect the expense amounts to date. For R&D expense we now expect that to range from $135 million to $142 million, which is a reduction from the previous range of $138 million to $145 million. For SG&A we now expect that to range from $35 million to $40 million, a reduction from the previous range of $40 million to $45 million.

Importantly, despite these expense guidance reductions, we remain on track in our key clinical development programs and with our commercial preparation for the launch of 424 in myelofibrosis.

In terms of our election of the codevelopment option for RA, we were pleased to see that the development budget we agreed to before deciding to opt-in was largely consistent with the amount discussed when we entered into this collaboration. As we noted when we announced our partnership with Lily, we expect the funds received from this collaboration will be sufficient to offset the development costs that we will incur as a result of opting in for the RA indication.

As a reminder, we have also retained certain mechanisms to give us cost protection as 050 advances in clinical development. For instance, we can defer our portion of codevelopment study costs by indication if they exceed a predetermined level. This deferment would be credited against future milestones or royalties and Incyte would still be eligible for the full incremental royalties related to the codevelopment option.

In addition, even if we have started codevelopment funding for any indication, we can at any time opt out for that indication and stop future codevelopment cost sharing. If we elect to do this, we would still be eligible for our base royalties plus an incremental prorated royalty commensurate with our contribution to the level of codevelopment costs for these indications for which we cofunded.

Finally, it's important to note that we end the second quarter in a strong financial position. Based on our current plans we have enough cash to carry us through the potential launch of 424 in myelofibrosis and beyond.

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

Thanks, Dave. I think, operator, if you could please open the call for questions, I think that would be the next obvious thing to do here.

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

Good morning and congratulations on the progress this quarter. First question just looking ahead to ACR in November, can you help set expectations for weeks 12 through 24, whether we should expect efficacy for 050 increased, decreased, was maintained? And then whether there was anything kind of new or changed in the safety tolerability profile?

I will give you some top-line stuff. I don't want to get too granular because I think we definitely want to make that presentation at ACR. We think it's going to be pretty well received.

As we saw -- we see across-the-board improvements in scores when you go from 12 to 24 weeks, actually fairly impressive changes, which mimic what was seen with the Pfizer compound. We may actually be seeing a little bit more but in the comparable studies neither study is so large that you could say that it's any different. It just may be that that is the time course here for these smoldering joints to quiet down. But it definitely happens, it gets better.

From a safety standpoint, I would say there is nothing -- Rich, may want to add to this -- but there is nothing of note beyond what we saw at 12 weeks.

I have nothing to add to that, that is correct.

Okay. And then just one more and then I will hop out. Just switching over to 424 in PV, the regulatory discussions; can you -- you mentioned progress with FDA. Are you willing to comment on whether there is any change in your expectations for what design of the Phase III trial might look like?

And then also maybe whether have been discussions yet over in Europe or is it still waiting sort of agreement from FDA? And lastly, are you still looking for an SPA there? Thanks.

Ideally we would like to do this under an SPA as long as the timing and the requirements make sense. We have had, I would say, extremely cordial and very positive interactions with the same division that we have worked with on myelofibrosis in trying to get to a final protocol that we all can agree on. We are, I would say, quite optimistic that we are going to get there in the near future, but it is the FDA and until it's done it isn't.

And so that is about -- I think that is a pretty positive statement. Rich, do you -- I was not at the meeting, but do you want to add anything today?

Basically there would have to be a sudden change for things not to go well. They are going really well there.

And with respect to the other part of the question about Europe, Novartis is going to be a part of the study. It is a global study and they have satisfied their needs from a European perspective so that there is no need to wait longer to get European regulatory buy in to this study.

Okay. Thanks very much.

Rachel McMinn, Bank of America Merrill Lynch.

Thanks very much. Rich, just to clarify your last statement, I am a little bit confused. There is no need to get EU regulatory buy in? Can you just explain that one more time?

No, I am saying that everything is done in Europe with respect to the level of regulatory buy in that Novartis needs.

Okay, okay. So --?

I am not going to go into detail as to what they chose to do per se. That is not really our purview to talk about.

And I think before you had talked about potentially doing a single study for PV that would satisfy both EMEA and FDA requirements. Is that still reasonable or should we think about this as being two separate studies?

We are at this point planning on a single study, single global study for what would end up being and SNDA, MAA submission. That could change at the last minute, but again unless there are some fairly radical alterations in feedback or from our partner that is the plan to do the single global study.

Okay, that is very helpful. And then for 050 do you have a sense of the breadth of the Phase IIb study that you are going to be conducting, I guess in terms of the different potential population you could go into within RA?

And then can you also talk about perhaps the cost of the Phase II program all-in? I think you had mentioned that they are similar to your expectations. I am not sure if you have mentioned specifically what that is.

Well, so I think this would be Lily's purview to get specific on the studies. We did the IIa study but we are almost certainly not going to be the prime conductors of the IIb studies.

The way the contract is written I think they have to give you that information. There is more than one or there is only going to be one -- we don't know quite yet. At least one.

Okay. And then on cost?

Again, similar we can't discuss cost. But I would say is again the budget we reviewed recently was largely in line with what we saw during the negotiation. And there is nothing unusual in the study design that would make it either more expensive or less expensive than your traditional Phase IIb studies.

Okay, great. Thanks, guys.

Brian Abrahams, Oppenheimer.

This is [Ryan] in for Brian. Just a quick question on 424. I guess given your progress with your ongoing discussions in PV with the Agency, what can you take from these discussions and how is that translating to kind of your thoughts in the future for the indication in ET?

So we have also had discussions -- we had the opportunity when we last interacted face to face with the FDA, which is fairly recent, to also get into ET as a possible indication. And we were pleasantly surprised at the receptivity that we encountered in those discussions.

We do want to put the PV study to bed before we begin to grapple with ET and have further discussions with the division, but we were quite encouraged with -- would that be a fair term, Rich, quite encouraged?

That would be a fair term.

Based on the initial set of discussions we had with them for ET.

Great. Thank you so much.

Liisa Bayko, JMP Securities.

I think most of my questions have been answered, but just wanted to get your take on the, I guess the increased level of activity that Pfizer is going to take with the Ligand JAK3 program and what you think that signals, if anything at all, about Pfizer's commitment to the space?

Could you be more specific about what things?

I mean do you think that that is possibly signaling any concern they have over their own program, that the Ligand compound perhaps has some benefits, or are they maybe trying to tie up the space a little more? Do you have any thoughts just based on your perspective of Ligand's program?

We don't know much about Ligand's program.

Okay.

The data that we have seen on Pfizer's compound continues, we think, to look quite good. I mean they had the specter of JAK3, which we think is not an attribute, that they have to deal with. And whether or not that has raised its potentially ugly head in anyway, I don't know.

Certainly nothing has been presented that would say that at this point with this relatively modest number of patients that have been treated for relatively modest lengths of time there has not been any evidence that you are seeing a lot of opportunistic infections, for example. They do have a liver signal; it seems sporadic.

We haven't seen it at all and it makes -- it is conceivable that that bothers them and they want a structurally different compound as a backup. They also have a long history of wanting different entities, different molecules for different sets of indications and that could well be what compelled them to take an interest in the Ligand program. But we really don't know.

Okay, fantastic. That is pretty much the end of my questions. We will look forward to more insights on the IDO program in the near future.

Okay, great. Thanks.

Eric Schmidt, Cowen and Company.

Good morning. Paul, a couple of questions and clarification on your statements. First, on the 424 COMFORT-I data you mentioned you were on track to present -- sorry, to have the results in Q4 and I think most likely present the results at ASCO. Do you definitively know that you won't be able to get those into ASH?

Yes, I think it's a real stretch to do that based on last patient out and the time it's going to take to lock the database. Do you want to comment on that, Rich?

So first we won't have the data for sure until after even the late breaker abstracts are due. So then you take the option of putting a placeholder late breaker abstract, which is no guarantee that you would get, and then that still puts you into a position of if anything potentially were to require more time to go through quality assurance or whatever that you may not make it.

So we are now pretty much decided that we are taking the approach that when the data comes out we will issue a press release, let everybody know the top-line results, and do the formal scientific presentations at ASCO.

And do you think that -- it's obviously an important press release for the Company. Do think you will be able to provide us with sufficient detail in that release and what kind of endpoints might we be looking at in the press release prior to ASCO?

I think we are also considering a call, right, to allow you and us to get slightly more granular than what would be in the press release. But not obviously so granular that we wouldn't be able to present at ASCO.

Okay.

We will make the press release as meaty as we think we can. Then if we are live we can continue the discussion and we will try to be as candid as we can.

And then on topical 424, do I interpret your comments to mean you are now definitively seeking a partner and won't go at this market alone?

Well, I wouldn't quite say that. We have a plethora of assets, which is good, but we decided that, for example, that we couldn't do -- that metabolism didn't make a lot of sense for us to do. And so we just haven't done any more studies with HSD1 or with HM74A -- also, by the way, I think a pretty interesting program.

But with topical, just yesterday -- we have parallel tracks that we are developing. One of them is to talk to partners and see if we can get the value for the program at this point in its evolution that we feel would justify licensing it. Our preference, if we could get that, would be to license it because it's really an outlier within the other things that we have ongoing.

But we also had actually a pretty extensive discussion yesterday about what the next studies would be that we would do and there are a few different avenues that you could go down. So that is still an open possibility and we just have to see where the negotiations lead us and where our internal discussions on the studies end up.

Okay. And the last question, maybe more for Dave. Now that you have opted in to 050 and you stated that many of the milestones will offset your cost commitments there, can you help us understand when you are entitled to the next milestone? Would that be the start of Phase IIb and any further milestones and any kind of magnitude guidance you can provide around those milestones?

Well, we can't give guidance in terms of the amounts. What I would say though is a couple of things. One, we were very pleased with the amounts of the milestones available under the contract and they are very traditional, Eric, in terms of when you would get those. They are usually at the initiation of studies.

Thanks a lot.

(Operator Instructions) Joshua Schimmer, Leerink Swann.

Thanks for taking the question. On 050 when should we expect Phase II trials for additional indications to begin and how do you think about exploring the various indications that you may pursue? Do you try to stick within your permitted use bucket; do you extend beyond the bucket? How should we think about that and the way that those programs may stagger? Thanks.

So that is a complicated question but -- and obviously I can't definitively answer it. We have had again many internal discussions and many discussions with Lily about what the other indications in inflammation are that make sense and when you would pursue them. For example, I would just throw out some examples, things like juvenile rheumatoid arthritis. Pretty obvious as it's an extension actually, the almost pediatric part of an RA program.

If you were looking at other indications where there is proof of concept and where the prevalence, patient prevalence, is interesting you would certainly be partial to ankylosing spondylitis and psoriatic arthritis indications that are lumped in into the seronegative spondyloarthropathy category. There are some others in there, like reactive arthritis, but those prevalences are significantly lower. But psoriatic arthritis and ankylosing spondylitis together, the prevalence is something like 35% of the prevalence of rheumatoid arthritis.

The biologics work and there is every reason to believe; in fact I would be incredibly surprised if this mechanism will not work there. So you could, for example, be doing pivotal trials almost in parallel with your Phase IIIs for RA. Maybe staggered slightly. So that is kind of low-hanging fruit and I think, to me, pretty obvious.

Now can I guarantee at the end of the day, since it's Lily's ultimate decision, where they go with this that we will go there? No. But to me it's pretty logical. It's beyond that that it gets a little more esoteric and you have to think a little harder about where to go from there. I think -- I don't have anything else to say on it but, Rich, you might.

Only that you also asked when we might start and the current plan is that Phase IIs in other indications would start sometime next year, not this year.

Okay, thanks very much.

Ladies and gentlemen, we have no further questions at this time so I would like to turn the floor back to management for any closing comments.

Thanks for your attention and the questions. We think that we are in a very good place right now and just need to also have the luck that you always need when you are doing this drug discovery and development. But I think it was the Green Bay Packers coach, what did he say, the harder you work the luckier you get. Vince Lombardi. So that is what we are doing.

We look forward to being able to present what I think is going to be a very exciting presentation at the rheumatology meetings on the full six-month study in RA. I am anticipating that the results from COMFORT-I and COMFORT-II are going to be positive. Safety profile is not going to be any different than what we have described to you with 251; the 251 patients have been on drug a long time.

And that will be filing and get an expedited review towards the end of next year we will be selling for our first indication with a drug that I think is pretty profoundly affects a very sick population. So we are very excited and we look forward to keeping you informed of our progress. Thanks again for listening to us today.

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