英賽德 (INCY) 2012 Q2 法說會逐字稿

Greetings, ladies and gentlemen and welcome to the Incyte Corporation second-quarter 2012 earnings 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 now begin.

Good morning, and welcome to Incyte's second-quarter 2012 conference call. On the call 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. Pat is traveling outside of the country right now, and is therefore not in the room with us. Paul will begin with a brief overview of the quarter. Pat will update you on the product launch of Jakafi, and Dave describe the second-quarter 2012 financial results. And prior to opening the call up for 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, our product revenue guidance as well as our development plan. 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 10Q for the quarter ended March 31, 2012 and from time to time in our other SEC documents.

Paul?

Good morning. The launch of Jakafi for patients with intermediate or high risk myelofibrosis continues to go well, and pretty much, right on the forecast that we have made. During the second quarter, we shipped $35.1 million of Jakafi to our specialty pharmacies, compared to $ 25.1 million in the first quarter. As Pat will describe in greater detail, we are seeing steady growth in the use of Jakafi by hematologists and oncologists. Since the pace of the launch is going as we expected, we are providing revenue guidance for 2012 net product sales in the range of $120 million to $135 million.

This range reflects our continued beliefs that the growth will be steady and gradual as physicians move from prescribing Jakafi for more severely ill MF patients to using the product in less severely ill patients, specifically patients with any degree of splenomegaly and/or symptoms. The drug provides dramatic relief in spleen reduction and in symptom improvement. Additionally, as we shared with you last quarter, further analysis of Comfort-I first published in the New England Journal of Medicine, suggests that there might be a survival advantage for Jakafi over placebo. In that regard, more recently, Dr. [Bischoff Sikerof] published an article in the journal, Blood, regarding their analysis of 107 MF patients from our Phase I/II study.

In the article, the authors state that in this group of patients followed for a median of 32 months, there could be a survival advantage with ruxolitinib treatment when compared to historic controls who had similar patient-entry criteria. Now while there are clearly imitations to these comparisons to historical controls, the authors also state that the data suggests a survival benefit for ruxolitinib independent of any comparison with a historical control group. Specifically, survival in the high-risk patients treated with ruxolitinib was consistent with that of intermediate two risk patients.

If published status states that the normal life expectancy for high-risk patients is approximately two years, compared to four years for intermediate two risk patients, this would suggest a very meaningful improvement in survival. In early June, there were a number of Jakafi posters presented at ASCO, all of which are available from our website. One I want to highlight, which is also the subject of an oral presentation at EHA is for the ongoing phase two study in patients with baseline platelet counts between 50 and 100,000 who, as you may recall, were excluded from the Phase III trials, but are part of the indication in the label. In this study, we start patients at a dosage of 5 milligrams twice daily and allow for dose modifications based on adequate platelet counts.

At the time of this interim analysis, the majority of patients that optimize their dose to 10 milligrams twice daily or higher, and for patients completing the week-24 visit, most experienced reductions in spleen size and improvements in symptoms to a degree that is comparable to what we saw at 15 milligrams and 20 milligrams twice a day in the Phase III trials.

I will now turn the call over to Pat who will provide you with more details on the launch. Dave will follow with an update about our financial performance for the second quarter, and I will conclude by providing an update on our other ongoing programs. Pat.

Thanks, Paul. Good morning. I'm going to start with a few metrics that may help you appreciate the basis for the guidance we are now providing. I am pleased to say that we are able to increase the number of physicians who have used Jakafi from over 1,000 reported in the first quarter to over 1,600 in the second quarter. We are building a broad base of prescribers, of which about 80% are from the community, and since launch, these community hematologists/oncologists have generated about 75% of the prescription volume. We are targeting approximately 6,500 hematologists/oncologists, most of whom are community-based. Unlike the key opinion leaders, these physicians each tend to have only a handful of MF patients, usually less than five. About 25% of our targeted physicians have prescribed Jakafi. And according to our market research, most physicians who have not yet prescribed the product say that they are likely to.

Their primary reason for not using the product yet tends to be, I am just waiting for the right patient. Our market research suggests that what they mean by the right patient is one who has a very large spleen and a fairly heavy symptom burden. Our label states that Jakafi is indicated for the treatment of patients with intermediate or high-risk MF. The label does not specify the degree of splenomegaly or symptoms burden required for use. And we fully expect to see use in less severely ill MF patients, patients with any degree of splenomegaly or M symptoms continue to grow over the next several years. We estimate that intermediate and high-risk patients represent about 80% to 90% of all myelofibrosis patients, and we continue to believe that there are between 16,000 and 18,500 MF patients in the United States.

Therefore, to captioner this market opportunity, a top priority for us is educating as many as possible of the 6,500 healthcare professionals who treat these patients to help them understand who the right patient is. We are doing this through a steady, systematic combination of direct calls by our field force, exhibits and displays at conferences, direct advertising, multi channel communications and educational efforts, including speaker programs. We are confident that once the physician sees first-hand that Jakafi truly works, to make a meaningful difference in how a patient with myelofibrosis feels is generally well tolerated and that the associated side effects are generally well managed, that he or she will be open to and appreciate the data that show that patients with MF who go untreated or who are treated with historical best available care, worsen over time and they worsen fairly quickly.

That is why we are confident over time physicians will see the value in using Jakafi in their immediate or high-risk MF patients with any degree of splenomegaly or symptoms and why we continue to expect our peak share in MF to occur about three years from the launch. Around the same time, we expect to have an indication in polycythemia there. I will now describe a few other factors that we think are relevant to the launch, as well as the ultimate use of Jakafi. First, some of the earliest patients who were prescribed Jakafi were very advanced, so ill they would not have been eligible for the Phase III trial in which life expectancy had to be at least six months. A second point is that the discontinuation rate seen in COMFORT I and COMFORT II of14% and 18% at 24 weeks and 48 weeks, respectively, are probably a good reference point for the low end of the discontinuation rates we are likely to see commercially.

And for length of therapy, remember that in the ongoing Phase I/II study at MD Anderson, about 50% of patients were still on drugs at three years. On another subject, nearly all pairs have Jakafi on formulary. Prior authorization is required maybe 0.666 of the time, which can slow down the initial script, but it is nearly always approved for on-label use of Jakafi. About 50% of patients have been covered commercially. About 70% of these patients have had co-pays of less than $100 a month. About 1/3 of all patients have been covered by Medicare Part D. Nearly all Medicare Part D patients have been covered under the standard benefit design, and many have sought and been able to access funds through charitable foundations. A small percent of patients have Medicaid or receive care through other government programs such as the VA, 340 Bs or Tri-Care. And as expected, between 10% and 15% of patients have received free drug. To summarize, the launch continues to go well.

We are very pleased with our current level of market penetration in MF and look forward to seeing a gradual increase in the number of patients on drug, a steady increase in physician interest and use, a greater appreciation among both physicians and patients that MF is a aggressive life-threatening disease that worsens over time, and that treatment with Jakafi provides compelling and important clinical benefits to patients with any degree of splenomegaly or symptoms. Importantly, Myelofibrosis is just the beginning, and we look forward to seeing the use of Jakafi grow with future indications in polycythemia vera and potentially other cancers.

With that, I'll turn the call over to Dave.

Thanks, Pat, and good morning, everybody. Let's start with product revenue this morning. It is important to note that we are still using the sell-through method for revenue recognition, which means we defer revenue until the specialty pharmacies ships the product to the patient. We anticipate transitioning to the sell-in method later this year, at which time we will recognize revenue when our product is received by the specialty pharmacy. Therefore, our 2012 net revenue guidance of $120 million to $135 million assumes this transition takes place and the revenue deferred as a result of the sell-through method is recognized this year. As noted in the press release, this deferred revenue amounts approximately $9 million net as of June 30.

As Paul mentioned for the quarter ended June 30, we shipped $35.1 million of product to our specialty pharmacies and recorded gross revenue of $31.9 million. Our gross and net adjustment for product revenue recognized for the second quarter was approximately $2.2 million, resulting in net product revenue of $29.7 million under the sell-through method. Had we been reporting under the sell-in method, our net revenue would have been approximately $32.7 million. The difference between the two methods, about $3 million net, was added to deferred revenue.

Our gross net adjustment includes the following -- fees to our specialty pharmacies; rebates to governmental payers; our share of the donut hole for Medicare Part D patients; co-pay assistant to eligible, privately insured patients; and any product returns. Our cost of goods sold was immaterial as our starting finished goods inventory was previously expensed as R&D prior to FDA approval. In terms of operating expenses, both R&D and SG&A were within our expectations. In terms of cash, we ended the quarter in a strong position with $262 million in cash and investments, excluding $9.5 million in restricted cash held in escrow for interest payments through October 2012 on our 4.75% convertible senior notes.

So with that, I'll turn the call back to Paul. Paul?

Thanks. So before opening for Q&A, I'm going to give a brief description of some of the other programs in the pipeline. First, the Phase II and Phase III long-term extension trials in myelofibrosis are continuing. Second, we anticipate patient recruitment in our pivotal P Vera trial to complete this year. So what we have guided is where we think we will end up here, which keeps us on track for a potential approval in the second half of 2014. Third, we have recently initiated a second study in PV patients called Relief, R-E-L-I-E-F. It evaluates symptom improvement in ruxolitinib-treated patients as compared to hydroxyurea-treated patients. And although it's not required for approval, we intend to submit results of this study to support labeling claims on symptomatic benefit in PV. Fourth, the Phase II trial in pancreatic cancer is well on its way to enrolling the approximately 130 patients with results anticipated next year.

Fifth, the three-month data from the Phase IIb trial in rheumatoid arthritis for baricitinib, our JAK1and JAK2 inhibitor, partnered with Lilly, represented at EULAR in June. The results were impressive. The six-month data are expected to be presented later in 2012, and we continue to expect that the Phase III program will start this year. Lastly, our early stage oncology programs for c-Met, an Indoleamine Dioxygenase or IDO are progressing. And I can address, or Rich, any questions you may have about them during Q&A. And we have other ongoing clinical development programs in oncology and inflammation. I anticipate describing these proprietary programs at the appropriate time.

With that, operator, let's open the call for Q&A.

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions)

One moment please while we poll for questions. Thank you.

Our first question is from the line of Matt Roden with UBS. Please proceed with your question.

Thank you very much for taking the question.

So I was hoping that we could talk a little bit more about the guidance, considering you will be changing the revenue recognition for the full year. If I am doing the math right here, seems to suggest that demand could be modestly up to even sequentially down in the second half. First of all, can you correct me if I'm thinking about this the right way? And then, can you just comment on whether or not this is just conservatism on your part? Or whether or not it reflects something you are seeing in the field that gives you a sense that momentum is slowing? And then, I guess what we are trying to get is, why could demand be sequentially down in the second half?

I will let Dave and Pat add to this. But I will just say, you have to remember, it is the first product in this therapeutic area. It is the first JAK inhibitor approved for any indication. We are about six months into this. We have evaluated a number of different scenarios, and we have developed a range of outcomes that we believe reflects a launch that is proceeding well. And it is expected to grow at a steady, gradual pace.

We did see in the first quarter, and late last year, an influx of patients who were quite sick, could not get into the Phase III trials, and were queued up to get into our studies. So I wouldn't call that a bolus, but I would say that revenues in the first quarter were somewhat higher than our forecast. Since that time, we are -- I'd say slightly ahead of our forecast, and right where we think the launch should be. But I will let Pat and Dave comment on your question as well.

Yes. And just on the growth question, even on the gross shipments, the low end of the range does imply growth in the high teens. And certainly in the high end of the range, higher growth than that. So Matt, there is growth second half compared to first half.

And I will just add that one of the factors that are driving our guidance range is the time it will to take for us to evolve from the use of Jakafi in the more severely ill patients that Paul was referencing, to the less severely ill, specifically the moderate-to-mild MF patients with any degree of splenomegalian conditions. And that will take education. And education is a major component of our marketing effort. And we will help the treating physician who is not that familiar with that myelofibrosis in the first place because they haven't had that much experience with it. And they need experience with Jakafi -- understand who the right patient is. And that we remain confident that, over time, this will lead to pretty broad usage within the intermediate and high-risk patient category for patients with any degree of splenomegalian symptoms. But it will take some time to get there.

Okay. Thanks for that. And, question on the new RELIEF study in PV. Does that imply that you could actually wind up with the first-line PV label? And can you talk about the implications of this study you see it, and whether or not it would be filed as part of your initial filing or as an SNDA?

The study compared to hydroxyurea is still in patients that are -- you are starting with the patient population that is already on hydroxyurea but are not responding as well as could be by virtue that they are still symptomatic, which is one of the parts of the definition of refractoriness to HU. So, I don't see this as the potential for an actual indication for first line. The second thing is that this study, which is just starting now, has a significantly shorter duration of treatment to the endpoint than the ongoing RESPONSE study. So the timing is such that both studies should finish around the same time and both would be included in the initial labeling. And that is our current expectation.

Thanks. Congrats for all the progress.

Our next question is from Brian Abrahams of Wells Fargo. Please proceed with your question.

Thank you very much for taking my question. And congratulations on the continued strong launch here.

Two questions. I guess the first -- actually a follow-up on the RELIEF study. We noticed that some of the inclusion criteria refers to patients who don't have palpable splenomegaly. And if you could maybe just talk a little bit more about the population you are planning to enroll in RELIEF as compared with the RESPONSE study. I guess my impression was that one of the major symptomatic benefits that you could potentially elicit here would be on spleens. So if you could maybe talk a bit about that.

And separately -- I know you have a new compound in Phase II for myelofibrosis and rheumatoid arthritis, 110. I am just wondering if you could just generally speak about how that potentially fits into your life cycle extension strategy for the franchise, and what the Phase II timelines might be there. Thank you very much.

We didn't want to directly compete for patients who are still enrolling in RESPONSE. So there are two differences in the patient population to make them not be eligible for both studies. One is that -- Well, let me just say it in a different way. In RESPONSE, you have to have both an enlarged spleen and have to have at least two phlebotomies within the prior six months. So in RELIEF, we said you could have one of those things, but not both, so that there is no overlap in the entry criteria. But otherwise they are very similar except that in RELIEF you have to have symptoms of at least a certain level.

And we also are studying the same endpoints in RESPONSE for symptoms. However, that study is not a blinded study, so we don't expect to be able to use that data in the same way. This study is a fully-blinded study and therefore something as subjective as systematic improvement really requires a placebo-controlled study. But in both cases, you're still talking about a patient population that would be defined as refractory to hydroxyurea.

With respect to 39110, very interesting compound. We think it has good potential in RA, other inflammatory diseases, and potentially in myelofibrosis. It is our compound, and we are not ready to really talk much about its mechanism or clinical results yet. We want it to mature a little bit before we put it into prime time. But I can tell you it is an interesting mechanism, and it is an interesting compound.

And just to quickly follow up on that -- when you say it is your compound, you're suggesting that this is not something that would fall under any of your existing partnerships, I assume?

Correct.

Okay. That is very helpful. Thank you so much.

Our next question is from the line of Salveen Richter of Canaccord Genuity. Please proceed with your question.

I'm just wondering if we could just get some more color here. When you're talking about switching to the sell-in method, should we assume that, that happens in Q3 and the $9 million in deferred revenue will appear that quarter?

Most likely, Salveen. But you never know. I would think at this point, Q3 is the most likely outcome for that.

And just following up on Pat's comments about the discontinuation rate. I'm seeing 14% to 18% is too low. What should we be considering then for discontinuation?

Pat, do you want to comment on that?

Sure. It's early to say what a discontinuation rate would be. Usually it is something that you've had longer-term and look retrospectively and say that's what it was. So we are trying to provide what is the longer-term data, which is from Comfort-I and Comfort-II, to give you some sense of what we think it would be. And of course, it is frequently the case that what you see in commercial practice is higher discontinuation rates than you would see in a clinical study because the study is controlled. And so we are trying to remind people what the discontinuation rates were in the studies, and we would expect that to be probably the low end of what we see commercially.

Great. And then, Pat, just a follow-up on your earlier point, that a physician is waiting for the right patient, and they want a patient who has an large spleen and heavy symptom burdens. Do they need to treat that patient first before they go into the less-severe patient?

I think for a lot of physicians, yes. And I don't want to generalize about all physicians -- but yes. Because there is always the first priority of a physician is to do no harm, and I want to make sure that when a new product is out on the market that it is going to be appropriate for their patient population, because they don't have a lot of MF patients. It does take a while to work their way through patients who are less severely ill versus it is a much easier call for a patient who a really suffering with the disease burden or an incredibly enlarged spleen.

So I feel very confident we will see that over time. But it is an over time thing. It is not something that we would've expected to have occurred yet.

Great. Thank you.

Ian Somaiya, Piper Jaffray. Please state your question.

I wanted to just get a better sense from you, Pat, on the type of patients that came on therapy this quarter. And one of the issues you had highlighted the last quarter, given the severity of patients that were coming onto therapy, was potential for a high rate of dropouts. Can you just speak to those factors? Is that one question -- follow-up to the one that Brian asked earlier.

Sure, Ian. Our market research suggests that about 90% of the patients going on drug are intermediate-2 or high risk, which more closely parallels with what was in the Phase III study, but it is narrower than what our label is, because our label is actually intermediate or high risk. So again, we would expect that over time with more familiarity with the drug, that there would be a shift in the patient population treated to those less advanced.

And just on the dropouts?

As I said, it is really too early to comment on discontinuation rates or compliance or really duration of therapy. That's why we have referenced the studies in other data which is longer-term.

Okay. And on your follow on JAK, can you just maybe share with us the relative selectivity for JAK1 -- for that compound, and when we can potentially see data for that product?

Well, we haven't said it is a JAK inhibitor. I'm sure your question relates to the Abbott Galapagos, going in that direction. That early data in a small number of Moldovans was interesting. And let's see what comes out of their further studies. I would say -- Rich, when do you think we would have enough data on 39110 to start talking about it?

I think in terms of MACUL meetings, we're probably talking about late spring or early summer of next year. But I don't know, for example, whether we would be giving top-line results on anything in advance with actual medical [meetings]. It's not really that well decided as to what that strategy would be.

I think that's the best answer we can give at this point.

Okay. Thank you very much.

Our next question is from Cory Kasimov with JP Morgan. Please proceed with your question.

Dave, a couple for you. One is that it looks like the gross to net was a bit lower in 2Q than 1Q -- I think about 7% versus 9%. How should we thinking about that going forward? And also, you had mentioned, I believe in reference to Matt's earlier question, that at the lower end of your guidance range, you are still looking for, I believe it was somewhere in the teens growth rate in the second half? I just want to confirm that's what you said, and maybe if you give a little more behind that math.

Sure. So the growth in net on average for the first six months, about 8%, Cory, as you mentioned. It is a little early to assume that's going to be the rate going forward. The key driver for growth in net is patient mix. So that may change over time. That range, though, has some variability but not a significant amounts of variability, as you think about gross net going forward.

In terms of growth, I was just looking at -- we shipped 60 million in the first half, and our revenue guidance is net. So you would have to ship more than that to achieve the low end of our net revenue guidance.

Okay. I see. Lastly -- for Paul. I'm just curious -- quick on your IDO inhibitor and the interest in this asset coming out of ASCO, and maybe -- I know you just recently started a trial with ipi in melanoma. Any kind of expectations in terms of how long this trial might take to approve where we could see some data from it?

Again, I'd pass that on to Rich. I think it's going to be a while.

You are talking about a combination therapy with ipilumimab in that study where ipilumimab itself has proven activity. So it is not the sort of study where you simply see a response, and then say, well, it must be your drug that is causing that to happen -- because it is a combination study. So I think it is going to be a while before we have a sense of that. We also have a second study starting soon in ovarian cancer, where we are using the drug as a monotherapy, and that might potentially give a quicker answer, simply because if it is activity, it's due to your drug and not to the drug that you are adding on top of.

Our next question is from the line of Thomas Wei of Jefferies & Co. Please proceed with your question.

I just wanted to follow up a lit bit on the questions that have been asked on discontinuation rates. Could you be a little bit more specific on, maybe for patients who have already started? You have described this bolus phenomenon in sicker patients going on. Have you seen a disproportionate rate of early discontinuations already for the patients who had started in the fourth quarter and the first quarter?

And then also, for the growth in the quarter -- just doing a little bit of back of the envelope math here -- is it fair to say that almost all of the growth in the quarter, in terms of new patients who were added, was related to these new physicians -- the 1,000 to over 1,600 -- that they each basically put one patient on drug, and that's almost the entirety of the source of new growth during the quarter?

Pat, would you?

Sure. Thomas, let me answer the second one first.

So, the over 1,600 physicians who have prescribed Jakafi, which we think is a good, solid foundation at this seven months into the launch -- the majority of them have indeed only put one patient on drug. And what we see is that we have those new prescribers joining each week and month as well as repeat prescribers. But we are still working strongly on broadening our prescribing base, because we think that is really a key to this market, because the patients are dispersed throughout the community and most physicians only have a handful of patients. So it has really been our focus and one of the reasons why I have emphasized it in our prepared remarks.

On the discontinuations, again, it is very difficult to compare over time, because at any point when you look -- you said compare first quarter to second quarter -- if they start in the second quarter, even if they started in April, they would only have been on drug for two months. So I would encourage people not to over-focus in on discontinuations at this time, because it is really hard to know what is a right discontinuation rate and what to expect. Which is why we reference the clinical trials, which were of longer duration and you could get a better sense for, over time, what might be an expected discontinuation rate.

Just to make sure that I understand, though -- when you make those comments on discontinuation. I'm having a hard time interpreting if right now what you're seeing is a relatively high discontinuation rate that you think will stabilize out to something more normalized, even if it is not as good as the clinical trials. Or if actually you're seeing not very many people discontinue even though there were sicker patients enrolled to start?

So, let me just say -- we had, early on, people whose life expectancies were less than six months put on the drug. And early on, we had people discontinue because they died. That is washing through. And we are asymptoting to a number that is lower, but we don't have that number yet. But it is proceeding as you would expect it to proceed. And I think what Pat has said is that you would expect, when we do finally asymptote to a more or less steady-state discontinuation rate, it is going to be probably slightly higher than the 14% to 18%, which is what you would expect out in the field as opposed to a controlled trial. I don't think we can be any more precise than that at this point.

That was very helpful. I'm sorry -- but just to clarify in the first question that I asked -- if we look at an add over 600 physicians during the quarter, and basically assume that they each put one patient onto drug, is that basically the source of all of the new patients during the quarter? The thousand who had prescribed before -- you did not actually see much progress in getting them to prescribe to other patients?

No, Thomas, what I was trying to convey was that we see both repeat prescribers as well as new prescribers. And those are growing -- both are growing in the second quarter over the first quarter.

Okay great.

And just to clarify that first statement, or to try to clarify it -- what we are seeing -- because we obviously track this -- is an increasing percentage over time of physicians who are putting a second patient and a third patient on drug. But still at this point in time, the majority of physicians have prescribed for a single patient. But it is moving in the direction of more physicians putting more than a single patient on. And of course, we have individual physicians who have put several dozen patients on. So it is a mix, but the majority of prescribers have prescribed for one patient at this point in time.

Our next question is coming from the line of Rachel McMinn, Bank of America. Please proceed with your question.

Yes, I have a similar question. A couple of things.

One is another way of getting at this -- was demand from new patients actually steady in Q2 versus 1Q? Or, I think that would help us understand how we should thinking about the discontinuation rate.

And I'm still struggling over the guidance, I have to say. Because if you grew $10 million sequentially in 2Q, and you assume that demand would be reasonably steady, and you throw in the $9 million of deferred revenue on top, we should be getting to much bigger numbers. The high end of your guidance should basically be the low end of your guidance. I think that is the part I am struggling with. That, I think, when Matt said initially that your guidance assumes falling off in the back half, I think what he was probably referring to is demand, that the numbers of new patients coming on would be dramatically lower if we go by your guidance. Thanks.

The number of new patients has not declined week over week as we follow it. Looks good. And I will let Dave reiterate what he said before about the guidance and the growth.

Yes. I mean -- again if you just look at gross shipments for the first half at $60 million to get to the low end of our net revenue guidance, you do have growth in the high teens in terms of gross shipments. And at the high end, your growth is in the low 30s%. So there is growth, Rachel, in the back half, on a like-for-like basis.

So that basically you're assuming that there is significant discontinuation rates coming in the back half?

No. I don't think that's correct. Pat, do have anything to add to that?

No, not really. I feel we have said about as much on discontinuation rates as we can. We are not expecting significant discontinuation's in the back half beyond what one would expect based on patients staying on drug for six months or one year, as we saw in the trials.

All right. Well, my follow up off-line. Thanks.

Our next question is from the line of Tom Russo with Robert E. Baird.

Good morning. Most of my questions have been asked and answered. But I haven't heard anyone ask you about the frequency of patient visits, and I'm just curious how that is comparing to expectations -- just thinking about docs getting to learn the experience that their first patient is having, and then also maybe seeing the next logical patient walk in the door.

Pat.

Sure. MF patients do visit their doctor every one, three, six months, depending on their level of illness. And what we are seeing is that the feedback from the field for doctors who have put that first patient on drug is generally very positive, very encouraging, even surprising in some regards. On the physician level the drug often does more and more dramatically than they expect. That being said, a lot of them still haven't yet put that first patient on drug. They view the patient as maybe not having such a enlarged spleen or such burdensome disease that it is worth taking a risk putting that patient on a new drug.

There is more of a, let's see a little while longer. For me that is all about education and experience and hearing in professional circles and through education and other forums and reading in publications for the physician to get comfortable with putting the first patient on. And then subsequently, when they have a good experience -- which is not after month one; it can be a longer-term thing -- putting additional patients on.

And, Pat, are you able to quantify from your market research at all, and maybe even provide the trend for awareness, aided and unaided level of interest, that sort of thing, that exists out there today? And maybe versus, at the time of launch, at the beginning of the launch?

Sure. At launch, there was not much awareness of Jakafi. It was very low. I don't want to cite the numbers, but a low double-digit number on awareness of the product. And now on an unaided basis, it is more like 70%. And on an aided basis, it's pretty much 100%. So it is definitely becoming more aware. But there is a difference, as you know, between awareness and knowledge and comfort. And so, awareness is really getting up there. We still need to work on knowledge and comfort, and that will happen over time.

Okay. And then last question -- over on 050, you've reaffirmed expectations to start Phase III before the end of the year. I was just wondering if you would share your latest thoughts on design and maybe setting up for success on the structure and point two?

Rich, you are closer to this than I am.

Yes. I have to be a little bit careful on what I say, simply because Lilly hasn't announced their specific plan. But what I will say is that we have learned from the experience of Pfizer, both from the data and patients who are already experienced on methotrexate that was presented at the FDA advisory committee, as well as the information that came out just this week on their positive results with both 5 milligrams and 10 milligrams BID doses in methotrexate-naives, where top-line results say that they did see a structured benefit there. And there are other lessons that we learned from Pfizer's experience as well. Yes, there will be structured studies. And we will be able to talk more specifically about it when Lilly announces what they are doing.

Great. Thank you.

Our next question is from the line of Liisa Bayko with JMP Securities.

Can you just remind us what the 1Q sell in net was? I am not sure that I am tracking with all of the numbers for at least 1Q.

It was like $22.1 million, or something like that [multiple speakers].

And that would be analogous with $32.7 million for this quarter. If you are doing sell-in net, it is $32.7 million. And since we've had no product returns whatsoever, that seems like a pretty legitimate number.

Okay, thanks.

It was like $22.7 million, in that range.

$22.7 million. And now we're about $32.7 million for this quarter?

[multiple speakers]Right.

Okay. Can you give us any update you can, on the rollout, timing expectations for Europe? Obviously, we know that it's approved. But then it comes down to all of the pricing negotiations and what not -- just a sense of timing on when we can start to expect some royalties flowing to you guys?

I mean we've said that we expect the approval to come some time this summer. And I just couldn't be real specific about country-by-country pricing and reimbursement. We do know that Novartis had some sort of call earlier this week and talked about their expanded access program, where they have, like, 2,200 patients on drug now who, when there was pricing in each of those specific countries, those patients had all come over very quickly as almost a bolus there, which we don't have because we did not have expanded access, per se. But I think that you could probably look at histories in each individual country as to how long those things usually take, to get a ballpark.

Okay. Fair enough. Thanks

Our next question is from the line of Eric Schmidt of Cowen and Company. Please proceed with your question.

Dave, I hate to beat the dead horse here on the guidance. But I want to make sure I understand the mid-teens quote from you. So if I understand the math right, you are looking at net bookings of about $49 million in the first half of the year, and comparing that to maybe $60 million-ish which is implied at the low end of your $120 million guidance for the year? And that the difference between those two is roughly high teens? Is that where you're coming from?

Right. That's one way of looking at it, or you can look at gross shipments as well, Eric, where did $60 million. If you want do like to like, we did $60 million. And you would need high teens growth to get to net low end of our guidance.

Okay. Thanks for the clarification.

And then, maybe a question for Pat -- one thing that I am still struggling with is on patient numbers. If we make some assumptions, looking at your revenue growth -- Q4 to Q1 to Q2 of this year -- and make some assumptions for when patients were added, it looks like you had a dramatic number of new patient adds in Q1 and probably exited Q1 at something like 1300 patients to 1500 patients on the drug; and saw very few, if any, net new patient adds in Q2. Clearly, [cues] indicated that you had at least 600 new patients being added in the quarter. So where am I off here? Can you provide us with total patients on this drug? Any reason you are not?

Well, we've always tried to go back to what are the market dynamics with myelofibrosis, and the fact that the patients are dispersed in the community and most docs only have a small number. We have always thought the broad base of physician prescribing was actually the most critical metric, because there has not been a drug out there for myelofibrosis before estimating things like discontinuations, compliance, duration of therapy. That is hard to do with the patients. You can look to the study data and make some estimates and conclusions.

But you don't know how that will be in the real world. But you do know that a new prescriber is a very valuable thing to have, because that is a physician who probably has a handful of MF patients now getting experience with the drug. So that's why we -- that is the metric that we continue to highlight; because we think that is a kind of an unequivocal metric. We know what that means. That is a net positive that, that number continues to grow, versus -- it is a little bit harder to read patient numbers and say, what do they need? It depends on how long their patients stay on drug.

Okay. I guess I understand that point. But can you also help me understand where my math has gone wrong? Or did the new patients total on this drug grow very little from the end of Q1 to the end of Q2?

No, there were definitely new patient adds in the second quarter.

[multiple speaker] Net patients on drugs? But did the net grow -- [multiple speakers]

And that the patients on drug increased in the second quarter.

Substantially?

That depends on your definition of substantially. It increased very much the way we outlined. We expected this to unfurl in a gradual but steady increase.

Okay. Is there a point in time when you might allow IMS to collect data on prescriptions, just to provide another source of information to us?

Our challenge is that if we let third parties collect data on prescriptions, it also goes to potential competitors who -- gives them a leg up even though they are a number of years behind us, that we don't actually have to give them. So I view it as important competitive intelligence, and I would like to guard that for as long as I am able to.

Thanks for the answers.

Our next question is from the line of Ying Wang of Barclays Capital. Please state your question.

This is Christina on behalf of Ying Wang. So I just have a quick question around what type of average duration of Jakafi therapy you are seeing so far? And also, to the extent that you can, can you separate for us the proportion of intermediate and high risk patient on Jakafi therapy?

Pat.

Sure. We think it is too early to comment on duration of therapy. So, we haven't provided that information. I'm not sure that it would tell you something that you would actually be able to successfully build a model off of, which is why we've gone the opposite way and tried to focus in on prescribers, and referred you back to things such as the studies, which provide longer-term information. So we are somewhat more forward-looking.

On the percent -- what we know from our tracking studies is that about 90% of patients on the drug, on the physicians that we have surveyed, are intermediate-2 and high risk, which is maybe 50% of the total in that patient population.

Thank you. Our next question is from David Friedman of Morgan Stanley. Please state your question.

Is the $9 million that you guys have shipped for (inaudible) revenue this year so far. Is that a reasonable proxy for the amount of -- the dollar amount of channel held to just build up a run rate of inventory? Well, I guess a different way is -- of the revenue guidance that you have given, what amount of that in dollars is inventory build-up to get the channels (inaudible)?

$9 million is a good proxy for the inventory held, especially pharmacies, David.

Okay. And that is a reasonable run rate given the demand you are forecasting for the year?

Yes.

Okay. Great. Thank you.

Thank you. Our next question is from the line of Boris Peaker at Oppenheimer. Please state your question.

I would just like to understand the dosing within the first two to three months of a new patient, particularly in the community setting. Specifically, how often do see docs prescribing two different pill doses, either twice the number -- 5 milligrams or 5 milligrams and 10 milligrams -- to the same patient in order to enable them to adjust the dose themselves? And how does that differ between the community setting versus a more of an academic setting?

Pat.

Sure, most scripts are written for one bottle, 30-day supply. That is the vast majority. But you are right. There are certainly some scripts that are for lower doses, say, two bottles of 5 milligrams for what it was intended to be a 10-milligram dose, and allows flexibility on the part of the prescribing physician. So just a couple points on that -- we have seen that those are generally covered without too much delay by payers, so we consider that a very positive thing. It is coming more from academic physicians, physicians who have more experience with more patients. I would say more of the community physicians are actually starting on a fixed dose, such as 15 milligram or 20 milligram, and are prescribing it in that strength rather than in subsets so they can titrate around it. But the majority are for the number of bottles. The script equals one bottle.

Could you give a more quantitative answer for the patients that do get, let's say, two bottles. How long do they typically get the two bottles for? Because my guess is, at some point insurance companies might object to that. And quantitatively, how much of an impact does that have on your revenue in terms of having twice the revenue for one patient?

Again, it is really quite a small percentage of the total. It's probably single digit, but I can't answer. I don't have that data in front of me but it is probably a single-digit number. At the moment, as I said, it is not something where there have been many payer issues. But of course, as soon as you do something which is a little different from what the norm would be, there maybe an added delay on it. But we see, in general, very few payer issues, certainly none worth being overly concerned about.

Okay. Thank you for taking my question.

Our next question is from David Crump with Morningstar.

My questions is on that 75% of physicians that you believe are waiting for the perfect candidate. How confident are you that they are going to get one of those severe patients? It just seems like if there is 3,000 to 4,000 severe patients out there, that's a good chance that maybe even half the physicians will never get that perfect severe patient, or at least not for many years. So is there any plan to try to get them more comfortable with the drug and start using it on more intermediate or less-severe candidates before they get that perfect candidate?

Yes. Absolutely. I mean, education and particularly understanding a couple of aspects of the disease, is really important. Remember, most of these physicians -- they may have 1,500 patients in their practice and three or four of them are MF patients. So they are just not as familiar overall with the disease or with the drug. But one thing that is clear is that many patients advance relatively rapidly. You saw that in our clinical trial. Data, even at six months -- if you look at what happened to the patients on placebo in Comfort-I, their spleens grew. The vast majority progressed and progressed fairly rapidly and sometimes to a fairly large extent. So MF patients -- most will become severe at some point in time.

Now, of course, we think for the benefit of patients it would be better to capture them earlier on in the disease, so you don't let the spleen get so large, you don't let the patient have this diminished quality of life, this heavy burden of disease. So it is important to start earlier. And our label clearly allows that. There are no restrictions on timing or starting. And so, working on education about the progression of the disease and the role of our therapy, it is definitely an important thing. And we will be focusing in on that more over the coming year than we have the past seven months, where our focus was more directed on the already-diagnosed more severely ill patient. Put them on drug. They have waited long enough. Give them something that is going to help them.

Okay. Thanks.

Our next question is coming from Mani Mohindru with ThinkEquity.

Most of my questions have been answered. I just wanted to get a qualitative sense on discontinuations. What has your feedback been from the field? And what's driving the discontinuation, if at all? Is it the lack of expected efficacy or symptom relief that the physician or the patient wanted to see? Or is there emergence of side effects like (inaudible) that is sort of driving that. And then I have one more follow-up question on the pipeline.

I would say the discontinuations -- again, it is hard to be more granular but anecdotally coming back from physicians -- there have been certainly some patients who are very severely ill who went on drug and their discontinuations are because they were just so advanced. But there is also some discontinuations for anemia or from bicytopenia. There has to be more education out there on how you might manage expected side effects of the drug, and how, when patients are on drug for longer period of time, their hemoglobin comes back to somewhat below baseline but to a very reasonable level; and how patients, even though they may experience that, actually tend still have a significant improvement in their spleen and their symptoms. So part of it is education on working through the discontinuations by adjusting the dose before the patient discontinues rather than having them discontinue.

So we are seeing there are certainly dose holds out there. And it would be hard to know if something is a dose hold or a discontinuation until time passes. But a lot of it is just what one would expect on side-effect management and comfort with that, and that goes back to the education.

So the way I am looking at it right now is that there is a potential for these patients to come back on therapy unless they go on some other clinical trials once these side effects get controlled or managed in some way? Is that --

I do think patients -- their platelets recover, their hemoglobin, if it was depressed, might recover -- would recover. And so, yes, there is certainly a potential when the patient has that recovery to go back on drug. Our label clearly states how you restart dosing on that. Remember, thrombocytopenia would be an expected side effect, based on mechanism. But part of it is making sure that it is well understood how you work through that, how you keep the patient on drug. That is truly the most beneficial thing for -- the patient is to never stop their treatment, rather than discontinue, wait to recover, go back on. And when they do restart, what is the appropriate restarting dose? So all of those things are about familiarity with the drug. And for a physician who has one patient on drug, that is a longer education than it would be for a physician who is on their fifth patient, on their sixth patient. Over time, I do think that also will be something that familiarity and knowledge helps us work through. But right at the moment, this would all part of what would be expected at this stage of launch.

Okay that is helpful. And one quick question on the c-MET individual. Will we see any Phase I data from that before it is completely handed over to your partner?

That's going to be up to Novartis at this point. Even though we did the Phase I study for them, it really is their decision about what they will get presented and when.

Okay. And the [initiation] of the Phase III RA program -- will that be more likely be a Q4 event right now, rather than Q3? How should we look at it? And I'm trying to get at it from more of a financial perspective, from the milestone perspective?

Let me just say that I don't think Lilly would be comfortable with us being that specific. But we don't think that there is much risk at all that it wouldn't happen this year, which indicates that it's not close to the end of the year as to where things are targeted for.

Okay. That is very helpful. Thank you.

Ian Somaiya, Piper Jaffray. My questions were answered, so I will take myself off the queue. Thank you. Our final question is from Thomas Wei from Jeffries & Co. Please state your question.

Two things. One, just to clarify on Rachel's question. When you talk about a consistent rate of week-over-week adds, you meant throughout the second quarter and going so far into the third quarter? And then what can you say or help quantify around compliance rates with Jakafi so far?

Pat, want to take that?

Sure. My comment on new patient adds -- I was referring to second quarter over first quarter. We are not commenting on anything after the quarter at the moment, which of course would be understood because this is a second quarter call. On the next question, was on --

Compliance.

It would be early to talk about compliance. Compliance, almost by definition, is a longer-term number. You look back over a year and you say how often did patients take the drug versus how often they were supposed to take the drug. So it is just too early to comment on compliance rate.

Before, you've said that reasonably well tolerated oral chemotherapy drugs -- the compliance that we would be looking at is in the 70% to 75% rate, long-term. Is it fair to say that, given the fact that doctors are still getting used to this, and used to the side-effect profile, the dose holds and the like, that you may be running at less than that, and hoping to get up to those rates over time?

No. I think what I was trying to convey with the 70% to 75% is that, that is a good compliance rate for a chronic oral cancer therapy. And I wasn't necessarily trying to tie it to Jakafi. It was more, again, what things do you look at to help give some sense. I cannot give compliance numbers because there hasn't been enough time since launch. But out there in general, compliance is 70% to 75%; pretty good for a chronic oral oncology product.

And in the consistent rate comment of it being 2Q over 1Q, I guess I don't understand that. I thought you talked about there being a big bolus in the first quarter. So how could the number of patients added in 2Q be the same as the first quarter?

I think what I was saying is there was consistent new patient adds in the second quarter.

Okay. Thank you. I'll follow up off-line.

There are no further questions at this time I would now like to turn the floor back to management for closing comments.

This is Paul. We have run pass 9.30; it has been a long call. So I'd just summarize by saying launch is going well. It is almost to the letter on what we forecast before we launched the drug. There's lumpiness if you look at it on a daily or weekly basis. But if you look on a quarterly basis, we think we are growing. The launch is going well. We have said all along that we thought that there would be steady and gradual growth, and that is what we are seeing. Just to reiterate about the first quarter -- it was mildly higher than that we forecast. Not a classical bolus; but there were some very sick people queued up.

We will obviously keep plugging away, and we anticipate that we will continue to grow. And so far, there is no indication that we are not growing at exactly the rate that we forecast before we started this. We are very excited about baricitinib going into Phase III. We think it has a very high probability of technical success. And we think that the compounds that we have earlier in the clinic, including 39110, are very interesting, and we are looking forward to providing you with more information on those at the appropriate time.

So with that, I will end the call, and thank you very much for your attention.

This concludes today's teleconference. Thank you for your participation.