英賽德 (INCY) 2011 Q4 法說會逐字稿

Greetings, ladies and gentlemen and welcome to the Incyte Corporation fourth-quarter 2011 year-end financial-results call. 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 welcome to Incyte's fourth-quarter 2012 conference call. With me today are Paul Friedman, Incyte's President and Chief Executive Officer; Pat Andrews, Executive Vice President, Chief Commercial Officer; Dave Hastings, Executive Vice President, Chief Financial Officer; and Rich Levy, Executive Vice President, Chief Drug Development and Medical Officer. Paul will begin with a brief overview of the quarter, Pat will update you on the product launch of Jakafi and Dave will describe our fourth-quarter results and 2012 financial guidance. Prior to opening up the call for the Q&A, Paul will close with a summary of some of our other programs.

Before beginning, we would like to remind you that some of the statements made during the call today are forward-looking statements, including statements regarding our expectations for the launch and commercialization of Jakafi, as well as our development plans for other indications and our 2012 financial guidance. 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, 2011 and from time to time in our SEC documents. Paul?

Good morning everyone. The approval and launch of Jakafi for myelofibrosis represents a major accomplishment for Incyte and an important advance for patients who suffer from this debilitating disease. Given the compelling benefits Jakafi provides, the encouraging survival trend that was described at ASH, and the fact that this is the first FDA-approved treatment for patients with MF, as well as the first commercially available JAK1 and JAK2 inhibitor, not surprising to me that interest in Jakafi is high and that the launch has been going well.

Since approval, on November the 16, and beginning on November the 22 through December 31, we were able to recognize $2 million as net sales in 2011 based on $4.9 million of Jakafi that we shipped to our specialty pharmacies. Dave is going to walk you through this with more detail in a moment.

I'd like to take a minute to describe why I believe Jakafi's going to be a successful product. First, there is no existing therapy that does what Jakafi does for these patients. The drug truly works, can make a meaningful difference in how a patient with myelofibrosis feels and gets through daily activities. It's well-tolerated and the associated side effects that are seen are generally well-managed.

Second, once physicians have experience with the drug, more often first with their more ill MF patients, and they see how effective Jakafi is, I believe they'll want to use Jakafi in the majority of their intermediate- or high-risk MF patients, and we believe this represents about 80% to 90% of all MF patients. I can tell you that we have gotten back from the field even in these early days multiple testaments to what I just said about physicians and patients and the responses that they're getting to the drug.

These two risk groups, intermediate- or high-risk encompass anyone over the age of 65 or anyone who has or has ever had any of the following; anemia, constitutional symptoms, or elevated white blood cell or blast counts, as well as anyone who has or ever had a platelet count of less than 100,000. You can see in this group why the overwhelming majority of the total MF population fits into these two risk categories.

Third reason for my optimism about Jakafi's commercial potential is that we received a broad descriptive label from the FDA with no restriction on baseline platelet count, nor is the label limited to patients with splenomegaly or specific symptoms of MF. This gives me further confidence that over time the benefits of Jakafi will be viewed as appropriate for most patients with MF.

And myelofibrosis should be just the beginning. The JAK pathway is involved in the growth and survival of numerous other cancers, and our plans as well as those of our partner, Novartis, involve advancing into other myeloproliferative neoplasms, hematologic cancers, and solid tumors either in separate studies or collaboratively.

In particular, in addition to the ongoing extensions of our Phase II and III trials in MF, there's the pivotal Phase III RESPONSE trial in patients with advanced polycythemia, and there are also trials in leukemias, lymphomas, and in pancreatic cancer. Regarding the PV pivotal study RESPONSE, our proposal to amend the entry criteria and reduce the size of the study was accepted by the FDA under our existing SPA.

The trial design now involves 200 patients randomized one to one, ruxolitinib versus best available therapy and we continue to expect the study to be completed in 2013, with our goal being to obtain FDA approval of the sNDA in 2014.

I'm now going to turn the call over to Pat Andrews and then she will pass the baton to Dave Hastings. Pat's going to describe more specifics about the Jakafi launch and Dave will walk you through our fourth-quarter results and 2012 guidance and then I'll conclude with a very brief update of some of our earlier stage programs before we move to the Q&A. Pat?

Thanks, Paul. Good morning. This is an exciting time for Incyte. Almost immediately after approval, the sales force began calling on physicians and the first patient, a Medicare patient, received Jakafi within a week. With six weeks in the fourth quarter to sell Jakafi, remembering that one week included Thanksgiving, one included ASH and one was between Christmas and New Year's, the level of sales achieved thus far confirms that the launch is going well.

While it's still early, based on our market research and feedback from the field, it's very gratifying to see how much awareness there already is about Jakafi. Over 80% of the physicians we've surveyed say they are aware of the product. As importantly, over 90% of the physicians we surveyed who have not yet prescribed Jakafi say they intend to do so.

To give you a sense of how it's going for the reps, so far the sales team has reached about two-thirds of the 6,500 hematologists, oncologists we're focusing on, many of them more than once. Because interest in Jakafi is high, and there is a clear unmet need for an effective therapy for myelofibrosis, the reps have been able to have good discussions with their key physicians and accounts, and office access has not been an issue.

Thus far, the number of physicians who have written a script is above where we thought it would be, and while most have written a script for one patient, there is a growing number who have written for two patients and then there are some who have written for quite a few. The highest prescriber, leading expert in myelofibrosis, has written more than -- scripts for more than 15 patients.

As important as the thought leaders are and they are very important, we expect that about 75% to 80% of Jakafi prescriptions will ultimately come from community hematologists, oncologist, most of whom have only a handful of MF patients, and thus far we're pleased to be seeing a broad base of prescribers emerging versus a concentration from a select group of thought leaders.

As predicted, most of the community hematologists, oncologists are starting with one patient. Therefore, we continue to expect uptake to be steady and gradual. Also, as we predicted, most of the initial use is in patients who have enlarged spleens and/or have a high symptomatic burden, but we're also seeing some use in earlier intermediate patients, especially among physicians who are already familiar with Jakafi, because they participated in COMFORT-I, the US [total] study.

In terms of access and reimbursement, this too is going as expected. IncyteCARES, our patient assistance program, is functioning well in helping to ensure all eligible patients have access to Jakafi. If financial assistance is needed, IncyteCARES can help patients directly or connect them to third-party foundations where they may qualify for assistance.

In regards to payer coverage, most payers take between 90 and 180 days to make formulary decisions. Consequently, most scripts are currently being processed as exceptions rather than under formulary. The time to fill the first script varies significantly, depending on the payer and the patient's financial circumstances.

Some patients have received product within just a few days, while for others it has taken longer. The average is two to three weeks for the first script. Subsequent scripts are generally dispensed much faster because coverage and financial assistance have already been determined.

IncyteCARES is also working closely with the specialty pharmacies to ensure appropriate follow-up with patients and their physicians regarding refills and thus far this, too, is going well. So while we're still early on in the launch, we're pleased with our results and believe that Jakafi should become a standard of care for intermediate- or high-risk MF patients over time. With that, I'll turn the call over to Dave.

Thanks, Pat. And good morning everybody. I'll start today by discussing Q4 results and then I'll review our 2012 guidance. Let's begin with 2011 cash. We ended the year with approximately $278 million in cash and investments. This excludes $19 million in restricted cash held in escrow for payments through October 2012 on our 4.75% convertible senior notes. Our cash use for the year was $188 million, not including $25 million received from milestone payments, and $16 million received from stock-option exercises. This was right within our cash-use guidance of $185 million to $200 million for 2011.

Now, moving to Jakafi. It's important to note that for a period of time we are using the sell-through method for revenue recognition which means we defer revenue until the specialty pharmacy ships the product to the patient. We will transition to our normal policy of recognizing revenue when our product is received by the specialty pharmacy once we have an established track record for product returns. While we do not expect product returns to be material, this is standard practice for many new products.

Through December 31 we shipped [$4.9 million] of product to our specialty pharmacies, resulting in gross revenue of $2.3 million, and gross deferred revenue of $2.6 million. Our gross-to-net adjustment for product revenue recognized was approximately $300,000, resulting in net product revenue of $2 million, and our gross-to-net adjustments for deferred revenue was also approximately $300,000, resulting in net deferred revenue of $2.3 million.

As discussed at our approval call, our gross-to-net adjustment includes the following. Fee toss our specialty pharmacies, rebates to governmental payers, our share of the donut hole for Medicare part D patients, copay assistance to eligible privately insured patients, and any product returns. We had no cost of goods sold, as our starting finished goods inventory was previously expensed as R&D prior to FDA approval, and in terms of our operating expenses, both R&D and SG&A were within our expectations.

Now moving to 2012 guidance. It is too early in the launch to provide guidance on product revenue. We intend to provide sales guidance once we have a longer track record and greater clarity of the underlying trends related to Jakafi sales.

It is also too early in the launch to determine the steady-state impact of our gross-to-net adjustments on a go-forward basis. In terms of milestones, while we aren't providing detailed guidance as to the timing or amounts of potential milestones, I can say that there are important events expected in 2012, including the potential product approval for Novartis in Europe, and the potential initiation of Phase III in RA by Lilly.

We also expect $67 million in revenue from the amortization of the upfront payments received under the Novartis and Lilly collaborative agreements. As we mentioned in our approval call we expect that our previously expensed validation batches will be utilized as inventory. Therefore, cost of goods sold should be immaterial in 2012.

In terms of R&D expense, we expect that to range from $215 million to $225 million. This includes non-cash stock compensation expense of approximately $25 million to $28 million. Our increase in R&D expense from 2011 includes higher co-development cost for the ongoing development of 28050 for RA, our aggressive efforts to expand the use of Jakafi in other indications, a commitment to advance our proprietary pipeline in oncology and inflammation, and higher non-cash stock compensation charges.

In terms of SG&A expense, we expect that to range from $82 million to $88 million. This includes non-cash stock compensation expense of $13 million to $15 million. The increase reflects the impact of having a sales force on board for the entire year, continued marketing investment in support of Jakafi, and increased non-cash stock compensation charges. We expect our interest expense this year to be $46 million, including a non-cash charge of $27 million related primarily to the amortization of a discount on the 4.75% convertible senior notes.

As I mentioned earlier, we have in escrow the $19 million in cash-interest expense related to these notes in 2012. So, with $278 million in cash and a product launch that's going as expected, I'm confident we are in a strong financial position. There are also significant upcoming events for our partners that could lead to potential milestones. So, with that, Paul, I'll turn the call back over to you.

Okay. And so before we open the call for Q&A, I just want to give you very brief summary of the other compounds that we are moving forward in our pipeline. For 28050, the JAK1 and JAK2 inhibitor that we partnered with Lilly, the Phase IIb trial in rheumatoid arthritis patients is nearing completion. It's quite close to completing.

Ideally, the three-month and six-month data will be presented at EULAR and ACR respectively. Plans for the Phase III are under way and we expect that the Phase III program will start later this year. And because we've exercised our co-development option for RA, we're now responsible for funding 30% of the associated future development costs for this indication. As a result of this, our tiered royalties increased and now range from 20%, up to the high 20%s.

In addition, Lilly recently began a 240 patient randomized, double-blind, placebo-controlled, dose-ranging study to explore the efficacy and safety of 28050 in adults with moderate to severe psoriasis. While it's dependent on the timing of patient enrollment, obviously, we expect to see data for the primary endpoint in the first half of 2013. Our earlier stage named oncology programs for inhibitors of the enzyme c-MET and IDO are ongoing. Both look very promising and expected to move into Phase II trials this year.

Novartis will take over the c-MET program and develop it. And for the indoleamine dioxygenase inhibitor, we plan on beginning a trial in patients with melanoma mid-year followed by a trial in patients with ovarian cancer in the second half of the year. And we do have several other promising programs in oncology and inflammation in clinical development, and I really look forward to describing them to you possibly later this year. So, with that, I would ask the operator to please open the call for Q&A.

(Operator Instructions)

Matt Roden, UBS.

Congrats on a very nice start for Jakafi. So really appreciate all the color on the coverage and the time to acquiring a script. That's really helpful. But we're at the exact midpoint of the quarter here. Is there any color you can provide on the weekly run rates over the past five, six weeks vis-a-vis the first five weeks or so that you were selling it in the fourth quarter? And secondly, Dave or Paul, can you comment on how you feel about your capitalization level at this point? You gave us guidance here pretty much in line with consensus but also you have potential for several cash milestones coming in this year, so can you give us a sense on how you feel for the year on capitalization. Thanks.

On the first, Matt, we don't want to get ahead of ourselves. I don't think that would be good for us and actually would not be good for you. We are very comfortable and pleased with how things are going right up until today. But we are not going to comment on what's happened since January the 1st, until the quarter's over and we do the next call. But the launch is going well and we're feeling very good about where we are. We just can't get any more quantitative than that at this point. On the second question, I'm going to let Dave handle that.

I'll just reiterate what Paul said. We're very confident we're in a very strong financial position. Launch is going as expected. We ended the year with $278 million in cash. As I mentioned, our partners have very exciting events coming up this year which would be sort of obvious milestones for our Company. So I think we're in very good shape from a capitalization perspective.

Great. Thanks a lot and congrats on the launch.

Thank you. Ying Huang, Barclays Capital.

First question is should we expect the gross-to-net adjustment around 12% to 13% for the rest of the year? And then also, do you guys have any idea when Lilly might release the data from the Phase IIb 050 RA trial? Thank you.

On the gross -- its a little too early to project what that's going to look like. As I mentioned a couple times now, the components of those are primarily driven by payer mix and once we have an established trend there, we'll be able to give guidance as to what the go-forward gross-to-net looks like.

So on the RA study, it's my belief that Lilly will not release data prior to the time that it is either presented at a meeting or the abstract is published. We're pretty confident but can't be sure that that will happen at EULAR which is the -- I think the first week in June of this year. That will be as we said in the script. The 12-week results with the 24-week results presented at ACR in the fall.

Okay.

I would say from the 28 data that we generated earlier and the fact that the study is designed almost identically, I'm looking forward to some very impressive data when they present it.

Okay. Thanks. Then if I may, could I have a follow-up? How long did it take the $2.3 million deferred revenue to clear the channel?

Well, we're not going to comment on that directly. What I can say is that based on our discussions with the specialty pharmacies, we expect them to hold probably about three weeks inventory, two to three weeks of inventory, something in that range.

Great. Congratulations. Thank you.

Thank you. Eric Schmidt, Cowen & Company.

I understand that you don't want to comment on sales or trends post December 31, but I was hoping maybe Pat would discuss how many patients were on the drug roughly at the end of the year, number of physicians who had written a prescription at the end of the year, and actually also commented that there could have been some disruption during Q4 due the holidays and the ASH meeting. I'm wondering if in fact you observed such disruption in the weekly sales trends.

Hi, Eric. So I'll try to give you some color on that. On the number of patients, we're not being precise on how many but in the first six weeks you might assume that most of the scripts were for one patient. You can almost back into what that number might have been for the first six weeks. That's not -- there's some nuances to that so it's not exactly that, but someone might have written for example a 20-milligram script but done it in 5-milligram bottles and so that patient actually got four bottles rather than one bottle, or a physician might have written a script for more than a month so the patient got more bottles. But you can estimate based on what the net reported revenue was.

As far as prescribers, so we have a broad base of prescribers which is what we were looking for. We feel that's where the opportunity ultimately is with community hematologists, oncologists, that's why we're focusing on 6,500 of them rather than a select group of thought leaders who may have higher volume but collectively they just don't have most of the patients. And with that, at the end of the year, about 85% of the physicians who had written a prescription had written it at that point for one patient and about 15% had written it for more than one patient. And as far as disruptions, the main -- I wouldn't call it really a disruption but there were holidays within the period from when we got approved on November 16 through year end and holidays mean that the offices aren't open. So almost you would expect that there would be lower volume in a four-day week than in a five-day week.

Great. And just a quick follow-up for Dave. Could you just remind us what's public about both the Novartis approval milestone and the Lilly start of Phase III milestone in terms of their size?

Yes, unfortunately due to the confidentiality arrangements between the parties, we can't disclose that, Eric. But obviously, those are important milestones for the program, so they would have a lot of weight in terms of the way they would value that deal. So they're significant and important to us this year.

Thanks a lot.

Thank you. Salveen Richter, Collins Stewart.

Congratulations on the quarter. Just two questions. Just following up on Matt's question, is the rate of patient additions in Q1 to date similar to Q4? And I think what we're trying to understand is whether a bolus of patients played a role in your 4Q numbers. Secondly, what questions are you getting from the physician community for Jakafi? Are they mostly on efficacy or safety, have to do more with the disease?

Okay. Salveen, on the bolus question, I wouldn't say that there was a bolus. Though there were clearly some physicians, some patients very knowledgeable about the drug's imminent approval and waiting to get on it but I wouldn't say there was a bolus. We didn't have some of the features that sometimes companies have that kind of creates an artificial bolus such as an expanded access program or patients transferring over from clinical trials. We didn't have that.

And then as far as types of questions that we're getting, honestly there's a lot of listening and there is a certain amount on the disease but really there's just a lot of listening on the new product. The safety's not been an issue at all, not really come up. It's more on the spleen reduction and the symptoms and discussions along those lines. The only area that I would say there is definitely still an educational need is on whether you should have the V617F mutation or not for this drug, and that there's still a fair amount of misconception on that you do need to have the mutation for the drug to work when in fact you don't need to have the mutation for the drug to work. But other than that, it's just what you would expect with a new product launch in an area that's not received a lot of attention and has a high unmet need. The real focus is on efficacy, not a lot of worries about the safety.

Thank you.

Thank you. Brian Abrahams, Wells Fargo.

Congratulations on the first quarter of launch. What's your feedback been on what physicians want to see before they prescribe Jakafi to their second patient? And I'm also curious how comfortable physicians have been using ruxolitinib in patients with platelet counts below 100,000 in light of the broad label?

So I think they just want to see how their first patient has come back and what he says about the effect on him and generally we expect that to be pretty positive because within sometimes a couple of days, but definitely within a month for symptoms and for spleen you begin to see results, and so chances are the first time that patient comes back which should be two to four weeks after the initial script they should be reporting that they're starting to feel better. And then as far as platelets below 100,000, so from that we do awareness trackers, post-launch, and we do ask physicians, a rotating group of physicians, about 50, have they seen an MF patient within the last two weeks or month, depending on the time gap between the survey, and we ask them did you talk about Jakafi, did you put a patient on the product, what type of patient was it, if you didn't, what stopped you. If you did, what was the features that led you to do so? Et cetera. And from that, they do say that they are putting patients on drug who have the spectrum of platelets above 50,000, certainly about a good number below 100,000, and a good number above 100,000.

That's very helpful. Just a quick follow-up. Are you seeing anything outside of your expectations with regards to adherence rates at this point?

No. I mean, but it's been a very short period of time, but no, really it's going very much as we expected it would.

Great. Thanks again.

Just to add one other thing to this, this probably will sound like when the President gives his state of the union and he has people he wants to highlight up in the gallery. So just as we've seen and heard in our clinical trials, patients and physicians appreciate how quickly the drug is working and this is one comment that we got back from one of our Midwest reps. But we've gotten significant number of these, hearing these across the country. The rep had met with one of her doctor's nurses. She quoted the doctor, saying that after only three weeks on treatment his patient is quote, doing extremely well and while her spleen is still detectable, her abdomen is indeed smaller and no longer taut, end quote. Patient also told the nurse, I'm feeling better than I have in a long, long time. The rep concluded, it's nice to know the doctor, nurse and most importantly the patient all think Jakafi is worthwhile. And that is the course of events with most of these people. We've had a few people who have come into the study who have been prescribed the drug who as you might imagine were so sick, they didn't qualify for the clinical studies and we have some -- we're not certain how well they will do, because they are very, very advanced patients. But this is a very typical type story for this drug, just as an anecdote.

Thanks.

Thank you. Cory Kasimov, JPMorgan.

First of all, I'm curious how the real-world experience has been with Jakafi's tolerability relative to what you saw in the clinical trials. And then a second question, I guess for Dave, wanted to ask you about your convertible debt and I hesitate to bring it up since it's not even due until 2015. But we are getting questions on it, quite a bit. So it's obviously well in the money and at this point is it your expectation you would just let it convert into common stock or will you entertain other strategies to avoid the dilution? Thanks.

Let me start to comment. The Drug Safety Organization reports in to me and we see the spontaneous reports that come in and while there have been a few spontaneous reports, they tend to be the same sort of things that we had in our package insert. There have been nothing unusual or surprising. We hear patients say that they have bruising which we saw in the clinical trial, but nothing unusual and that doesn't surprise me because the safety profile was fairly well-established in the past. But we'll continue to follow that and see. But I don't think there have been any surprises.

So Cory, on the convertible debt, unfortunately there's no magic bullet to rid ourselves of the dilution. I mean, what I would say, as you mentioned, it's well in the money. We're always looking at our capital structure holistically and obviously that is part of the capital structure. We're hoping that over time this becomes a capital allocation story. Our capital is precious to us and there are things you can do with notes. It is not callable. There are things you could do privately and other techniques with the convertible debt. But at this point in time, we're really primarily focused on the launch and execution at this point.

All right. Thank you.

Thank you. Tom Russo, Robert W Baird.

Congrats on the good start. Just wanted to circle back to a comment that Dave made earlier about inventory levels that are expected. Can you say what was the wholesaler or the channel stocking in weeks at the end of the year?

Well, we don't want to get into that detail at this point, Tom, but again, just reiterating, in general we expect these guys will hold somewhere between two to three weeks of inventory.

Would they be expected to have been there that quickly or would they have started out -- I'm just trying to get a sense of whether there was a lot more than that in the channel at the end of the year or roughly the expected amount.

Yes, I don't think that their purchasing was out of the ordinary at all and I think it's consistent with what they have communicated to us in terms of their strategy.

Okay. And then continue to provide updates on the Phase III PV trial. Just curious, are you able to give a percent enrolled at this point and maybe the distribution of enrollment geographically that you're getting into that trial?

Sure. So it's always been the case that enrollment has gone better outside of the US than in Europe. And the amendment that we put into place last fall has been in effect at all of the US sites that are under essential IRB and now most of the ones that take a little bit longer to go through, they go through local IRBs and scientific review assessments before those things get made. With respect to Novartis territories, which is predominantly Europe but not exclusively Europe, those take longer because they all need to go through the national authorities as well. There's just been a couple of countries now outside of the US that have approved the amendment.

The effect of the amendment can be looked at first within the US. Where we've already enrolled in about two to three months half as many patients in the US as we had enrolled over the first year in the US. So it's clearly making a difference. But in terms of magnitude of effect, we expect that to have a much bigger impact in Europe and outside of the US because they've been able to enroll more anyway. And there are certain aspects of the way certain things are defined that are potentially more amenable to enrollment in Europe as well and so we really expect by the end of the second quarter to really have had probably by that point a good three months of experience in Europe with the new amendment and at that point should have a very good idea as to when the study will close to enrollment and we can be precise about our time lines after that.

Okay. Just a last quick question for Pat. Can you just comment relative to expectations you set a couple of months ago about early distribution across payer type and maybe the percent of patients that have gotten free drug to this point?

Sure. So I think on just the free drug, we had estimated it would be 10% to 15% of all patients and that still seems very realistic. And then payer type, so there -- in some regards the payer, whether it's Medicare or commercial, doesn't matter that much from a reporting -- sales reporting, because we don't provide discounts to either, rebates to either, so they're kind of equal from our perspective and we thought that it would be fairly equal as far as distribution between those two. We're probably running slightly higher on the commercial side than I had expected but that also might be the beginning of the year or some other things with Medicare. And other than that, it's very consistent. Medicaid remains a very small percent and that's the only one that has like a large discount automatically associated with it. So in that regard, payer distribution, slightly more on the commercial side than originally anticipated but that could well work its way out over the next few months.

Okay. Thank you very much.

Thank you. Rachel McMinn, Bank of America-Merrill Lynch.

I wanted to follow up on the question about bolus and how sick patients work. Can you give us a sense -- I know you were trying to target patients that weren't critically ill because you wanted to make sure physicians had a good experience, but when we think about the initial trends and if you ended up getting a large proportion of very sick patients early on, that could negatively impact duration of drug and expectations of what uptake would be in the back half of the year. And then I also wanted to dig in a little bit more into dose titration, whether physicians are encountering any difficulties modifying the dose based off of some of the hematologic toxicity. Thanks.

So let me just start and then I think you have a more elaborate answer. The point I was making was there have been a few really sick people. That was the sole point of what I was saying. Not that the majority of patients who were put on the drug in the fourth quarter were terminally ill people. There are a few, as you might expect and I think Pat can give you maybe a better breakdown of the types of patients who were put on.

Sure. So while there have clearly been some patients who were sicker and we know that from a variety of ways, I think that that's still the very small minority. Most patients who started on drug started at the 15-milligram or 20-milligram dose and I would say that as far as dose titration goes, most physicians have only put one patient on drug and that patient they generally start on 15 milligram to 20 milligram. For physicians who put multiple patients on drugs, you can see them using the range of doses, as low as 5 milligram, as high as really 25 milligram, even though very, very few at the higher 25 milligram. And so I would say that they're adapting based on experience as well as what's in the label as to what the right dose is for the patient and the more experience they have, the more adept at that they are which is why you see physicians who put on three, four patients that they put on one at a 15 milligram and one at a 10 milligram and one at a 20 milligram or something. So you see that richness developing and I feel like that that will continue with greater experience with the product.

I think it's also fair to say that we haven't heard concerns coming back to the reps and things like that saying I don't know how to titrate my patient, I can't do it, it's too complicated. None of that. It's just been Pat can look and see what size doses are prescribed but we haven't heard any issues with it.

Great. And then just one follow-up on the V617F mutation and just the lack of understanding from physicians on that. You had mentioned this at ASH as one of the biggest misconceptions. How does that impact -- is it just something where docs don't understand it, that you tell them a couple of times they get it or is it something that you think is actually limiting initial I guess desire to use the drug because gee, I have to go in and test and I don't want to do that.

Well actually most test anyway so that's not really it. It's just there's been so much push towards personalized medicine in the last few years and there's been recent oncology products and others where having a mutation is part of the diagnostic criteria, so they've just been over the past few years sort of pushed towards believing that if there is a mutation involved in a disease, then the drug treats only patients with the mutation. But that's not the case here. Because we treat a pathway, not a mutation. They will get that. It's just as you know, most of the physicians who are in the community have this broad -- patients across the spectrum of different diseases and they're just not as familiar and as on top of what the situation is with myelofibrosis and what the different causes of the disease are. But they've generally heard of the mutation, so that's just one of the things that over time with education and greater exposure and familiarity with the product that we'll work through. I don't think it in any way limits ultimate usage of the drug but it probably adds to the gradual and steady nature of our launch.

Great. Thanks very much.

One other point was that I think you made the point, while you -- just a few patients were extremely sick. Most of the initial use has been in patients who indeed have enlarged spleens and/or higher symptomatic burden but in fact we have already seen some use in earlier intermediate patients which I think is encouraging.

Thank you. Ian Somaiya, Piper Jaffray.

Congratulations on a great start. Had a question for Pat. I know we're, what, roughly 12 weeks into the launch of Jakafi but can you give us a sense of what the size of the market is? I don't know if there have been any changes in your expectations for the overall market opportunity. Second question I had was on anemia, obviously was a prevalent concern coming from the Phase III studies, whether that has manifested itself in any way in the commercial experience. And then I had one last question on the guidance.

Okay. So the size of the market, we've for a long time been saying 16,000 to 18,500 of which 80% to 90% are intermediate- or high-risk MF and that still is the case from everything that we know, nothing has changed our thoughts or opinions on that. And I'm sorry, the other question was on anemia?

Anemia, yes.

I don't think that the Phase III data said there was a significant problem with anemia. I think what it said is that there was generally a 1 gram drop in hemoglobin over the first 8 to 12 weeks which is about 50% improved to only a 0.5 gram difference at 24 weeks which is very similar to placebo at that point and also is probably at least as good as what you saw with best available therapy and that's what the other choice really is that was seen in the COMFORT-II trial. And these patients require -- for those patients who require transfusions, they require fewer tranfusions than on the control because they have so much more energy from the drug itself. So it's there but we never really would actually have called it a problem, per se. And then I'll turn it over to Pat to have any comments on what she may or may not know about anemia in the marketplace.

So we're not getting feedback from the reps saying that there's a lot of concern over anemia or thrombocytopenia. That in fact, the physicians are very used to managing both of those aspects and what was really appealing to them is they've not had anything to treat their MF patients with and now they have something and it's very effective on spleen and symptoms. There's a heavy symptom burden so they now get to provide something to the patient and we're not getting feedback that thrombocytopenia or anemia or issues for them (inaudible).

If I could ask that a little bit differently. Given your clinical trial experience, are you seeing a lower rate of transfusions in the marketplace with patients who are on drug?

It would be really, really early to see that and to be honest that's just not the type of data that we get. We would have to do separate market research on that. It's probably something I'll do much later this year.

Okay. And just a question on R&D guidance. What portion of that is related to the 050 Phase III trials?

We don't break down the actual numbers in the overall -- from the overall number. We've never done that. But the bulk of the increase come from the 30% commitment to the Phase IIb and Phase III studies and we expect the Phase III study to start this year so that is a reason that those expenses are going to go up and are aggressive and I think appropriate efforts to expand Jakafi's indications by having carefully selected a bigger myeloproliferative neoplasms. Liquid tumors where we know the JAK pathway is turned on and the first solid tumor being pancreatic cancer, where the JAK pathway in many patients seems to be overly active and there is a lot of cytokine induced cachexia. So those two areas account for the bulk of our increase in R&D. And we think that that is wise spending of money. There are a couple of other smaller items that Dave, you might want to--?

I'd just also add that, sort of an artifact of Black Scholes, our non-cash charges this year in R&D are up over $10 million. So that's another pretty significant component of the increase.

Thanks. That's very helpful.

Thomas Wei, Jefferies & Company.

I just wanted to understand a little bit more about your Medicare commentary. How has the donut hole affected prescribing so far? Are you -- did you actually see in the fourth quarter a lot of Medicare patients resisting filling their prescriptions because they didn't want to pay a double donut hole in both December and January? And should we assume that that factor has corrected itself or does the donut hole concern still persist through the first quarter for this patient population?

So Thomas, I think we saw both. We saw some patients already through the donut hole so they definitely wanted to get their medicines in December. Then if they could get more than one month supply, that was good. But we also saw the opposite. It was very clear that some patients said I haven't gone through it yet and I'm not ready to pay $1,800 for out-of-pocket for something I'm going to have to pay another $1,800 on two weeks later. So there was clearly some waiting on that.

However, once you go through the donut hole you're through it and so if you want to get on drug there's really no reason to wait once the new year starts. The only reason would be is if you don't have the money and you need assistance and for that there are foundations established that have been very, very active since the -- well, since they were set up. But particularly since the beginning of the year. And I think that that will -- that combination of there's really no need to wait because you have to go through the donut hole and you do it with the first prescription of Jakafi, and that the foundations are there and they're able to support patients who have financial need that there's really no reason to wait. I expect that to work its way out within the first quarter.

And do you have a sense of what proportion of Medicare patients in general with myelofibrosis actually exceed their donut hole before the launch of Jakafi, just based on whatever they -- diseases they had or whatever drugs they were receiving, was the donut hole something that they typically encountered? Do you know percentage maybe encountered it?

No, I wouldn't have that level of detail.

And then just following up on Ian's question about the size of the patient population, I guess you've got your field force out there. If you had to guess, what is the direction of your bias on the patient population number based on what the sales force is seeing out there in physician practices? Do you think that number could go higher? Lower? And also, same with the proportion of low versus intermediate versus high risk.

So again, there's not been enough time for me to change any view that I've had on the size of the market or the distribution across different segments. It's just we need more time and actually substantial amount more time, like most of this year I would say, before we would be able to have additional insight into those two questions, Thomas.

Thanks.

Thank you. Sapna Srivastava, Goldman Sachs.

Hi. This is Yogesh on behalf of Sapna. Congrats on the launch. Just to follow-up, is there any further color in terms of the patient base breakdown between intermediate 1 and intermediate 2 and high-risk? And also in terms of the prescriber base between community and academics?

Not really, between community and academic. It's probably weighted slightly more towards academics at the moment but that's because they were more familiar with the product because more of them were COMFORT-I investigators, but I fully expect that to modify and go to the 75% to 80% of all patients we expect to come from the community and we're not quite there at the moment but we're getting -- it's closing in on that. And what was the other?

In terms of intermediate 1, intermediate 2 and high-risk patients.

We don't ask for that breakdown so we don't get that and I wouldn't know. Anecdotally, we're getting more use in the high-risk and the intermediate 2 and it will take longer to work through to the intermediate 1s. As I said before, there's a more obvious patient for the drug and it's those with greater splenomegaly and a greater symptom burden and they're more likely to go on the drug first and so it's not surprising that that's really where we're seeing more usage and it would take a period of time for physicians and their offices and patients to be fully comfortable going on the drug earlier and earlier in the disease. And so that's why this is a launch that takes time and doesn't all occur in the first three to six months. But that's where we're heading toward and I expect that the end of this year, next year we'll see a lot more usage in earlier stage.

Great. Thanks a lot.

Thank you. David Friedman, Morgan Stanley.

Actually, could I just add, because maybe it wasn't clear what I said. The majority of all prescribers have -- to date have been in the community. On more of the academics that prescribe more than one patient, but the majority of all prescribers even now have been in the community.

Just on the reimbursement side, are you seeing payers have any specific hurdles either to get on drug or to stay on drug regarding spleen size or counts or symptom burden, specifically more on the back end? Are there any checks on the back end to make sure that people are responding in a safe way in order to allow them to maintain their prescriptions?

Again, it takes most payers 90 to 180 days before they make formulary decisions and so what we're operating under now and certainly through year-end has been much more on an exception basis and it would be hard to draw conclusions from that. It's an oncology product and, therefore, protected class in Medicare and it's difficult for them to -- Medicare patient to be restricted beyond what's actually in the label. And on the commercial side, again, we'll see that over time and it would be early to comment on that but I haven't seen things that are unexpected.

Okay. Thank you.

Thank you. David Krempa, Morningstar.

Can you guys talk a little bit about how you view potential competing treatments from Sanofi and others? If that's something you guys even think about at all yet. Obviously Jakafi had a nice head start. But do you think you'll be able to hold onto the market if new entrants do join?

I'll start but then I'll let others add. I will say commercially it doesn't matter, someone is two or three years behind us. No one is going to wait to go on drug for something down the road. We have this nice runway of time to get both physicians and the patient community familiar with Jakafi and its benefits and I feel very confident that once patients go on drug and once physicians have the experience with it that most patients will be well-controlled and very happy with their medication and therefore, physician would not take them off drug merely because there's other possibilities that are now on the market. So new entrants would be competing primarily for newly diagnosed patients which is about one-sixth of the overall markets. And a new competitor, they always do, they always make some in-roads but I wouldn't expect it would be easy for them to do so because the reality is, there's a very high unmet need before Jakafi came into the market. But once it's on the market, the unmet need reduces significantly. I'd let others comment on clinical aspects.

So the Sanofi/TargeGen compound is a compound that is -- actually, it is highly selective for JAK2. It doesn't do much for JAK1. And to our experience has been that to treat the symptoms well, you need JAK1 inhibitory activity. So for them to get significant JAK1 inhibitory activity, they have to go higher in dose which would then lead to more JAK2 suppression, ergo you would predict more bone marrow suppression.

Additionally, the pharmaco for that they ended up with and a number of our would-be competitors have, have crossed over to another kinase called FLT3 and FLT3 inhibition leads to a significant amount of GI side effects and the drug has that issue. So when you look at the profile of that particular compound, it's difficult for me to see any advantage and it's most likely going to have disadvantages. The other compound is the YMI compound, and again, we talked about that ad infinitum and what you have there is a compound that is impacting JAK1 and JAK2 to a lesser degree at the dose they're using than we are and therefore, they're lower on the dose response curve.

They have a long way to go. They have some off-target toxicity, compound's weaker. If we go lower on our dose response curve, we can minimize that initial effect on hemoglobin that Rich referred to earlier. You lose a little bit of efficacy, but you can still be effective at dose like 10 milligrams BID, it's a pretty good dose. They probably have a chance of getting there. I don't see at the end of the day when all the data plays out that there will be any qualitative difference other than the off-target side effect profile that they do have.

I just want to make one comment and that is in the relatively short term where they're doing clinical trials, whether it be TargeGen/Sanofi or potentially YM if they go to Phase III. We are already seeing for some of our open label trials that are still enrolling patients with MF some decrease in our ability to recruit patients because they say they'll just go on Jakafi. And Jakafi is a commercial product, rather than going into a clinical trial. Now, compare that to a patient that needs to go into -- might consider going into a trial where they have maybe a 50/50 chance of being randomized to placebo or to what was previously considered best available therapy. Both of which we've already shown clearly superior results to. So I think that you're not going to see a significant impact on our commercial sales within the short term when they're trying to enroll into their clinical trials.

Great. Thanks for the answer, guys.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Dr. Friedman for closing comments.

Well, as we've said throughout the call, we are very comfortable and pleased with where we are as of today. It is early days and we will be more expansive in what we report going forward. Probably need another quarter or two to really have a good feeling for the trajectory of the launch. And we're looking forward to Lilly presenting their Phase IIb data. I think that is going to be an interesting presentation and moving the other indications for Jakafi along, in particular, the RESPONSE trial. So thank you very much for your attention this morning and we look forward to speaking with you again. Good-bye.

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