英賽德 (INCY) 2012 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Incyte Corporation's third quarter 2012 earnings conference 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 of Investor Relations and Communications. Thank you, you may begin.

Good morning, and welcome to Incyte's third quarter 2012 conference call. It has been a challenging week for many, and we appreciate your participation this morning.

On the call today are Paul Friedman, Incyte's President and Chief Executive Officer; Dave Hastings, Executive Vice President Chief Financial Officer; Rich Levy, Executive Vice President Chief Drug Development and Medical Officer; and the newest member of the Incyte team, Jim Daly, Executive Vice President and Chief Commercial Officer. Dave will begin with a review of our third-quarter financial results, and Paul will follow with additional comments regarding the ongoing launch of Jakafi and provide an update on our lead clinical program. Then Jim Daly, who just started here last week, is going to share a few of his key reasons for joining Incyte. We will then open up the call for Q &A.

For beginning, 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 10-Q for the quarter ended June 30, 2012 and from time to time on our other SEC documents.

Paul?

Dave.

Dave, sorry.

Thanks, Pam, good morning everybody. I'll start this morning with product revenue, which for the three months ended September 30, 2012 was $43.7 million. As expected, this quarter, we transition to the sell-in method from the sell-through method for revenue recognition. This means that we are now recognizing revenue when our product is received by the specialty pharmacy. As a result of this transition, included in net product revenue for the quarter is $9 million of previously deferred revenue from products shipped to our specialty pharmacy customers prior to June 30, 2012.

In our press release this morning, for comparative purposes, we provided a table showing the third quarter as if we were still using the sell-through method, which as you know, is based on dispenses in patients. As that table shows, using the sell-through method, our third-quarter net product revenue would have been $34.5 million, compared to $29.7 million in the second quarter. This 16% sequential growth in Jakafi dispensed to patients in the third quarter supports our expectation of a steady and consistent launch.

Our net product revenues for the nine months ended September 30, 2012 were $92.7 million, and we have tightened our guidance for 2012 to a range of $130 million to $135 million, which represents the upper end of the guidance we provided last quarter. Our gross and net adjustment for product revenue recognized for the third quarter was approximately $3.4 million, or about 7.3%. As a reminder, this percentage will vary from quarter-to-quarter depending on our [impair] mix, but it has been relatively consistent over the past two quarters.

Our gross and 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 assistance to eligible privately insured patients and any product returns. Our cost of goods sold was immaterial, as our initial finished goods inventory was previously expensed as R&D prior to FDA approval.

And in terms of operating expenses, both R&D and SG&A were within our are expectations. In terms of cash, we entered the quarter in a strong position with $244 million in cash and investments. That excludes $9.5 million in restricted cash held in escrow for interest payments through October 2012 on our 4.75% convertible senior notes. To conclude, with the Jakafi launch going well, and our expectation of future milestone and royalty payments from our strategic partners, we are in a strong financial position.

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

Okay, thank you.

As Dave said, we are seeing steady and consistent growth as evidenced by the 16% sequential increase in underlying demand, and we are building a strong foundation for long-term growth of Jakafi. We saw a consistent rate of new patients initiating Jakafi during the second and third quarters. And here it is important to note that new patients are generated from both new prescribers, as well as existing prescribers who continue to treat an increasing number of patients. And in that regard, approximately 30% of our target customers have now prescribed Jakafi.

Overall, this means, that we are growing the base of prescriber experience with Jakafi, and increasing the depth of experience, which reflects physicians' desire to identify more patients within their practice who are appropriate for Jakafi treatment. And we continue to be focused on improving persistency for patients who initiate treatment with Jakafi. As we discussed in the second quarter call, the primary reasons for patients either coming off therapy or being placed on a dose hold include thrombocytopenia, anemia, and death.

The data suggests we are starting to see improvements in persistency, which reflect two ongoing developments. First, we are seeing a gradual shift to less advanced patients taking Jakafi, and, second, physicians are becoming better informed on how to manage Jakafi dose titration through increased experience, and an expand educational campaign on what to expect when initiating and maintaining use of Jakafi over time. Our goal is to reach every new patient and prescriber to ensure that they can achieve the best possible outcome with Jakafi.

One important message is to reinforce proactive dose modifications by physicians consistent with Jakafi's label. Since we have seen in our pharmacy data that physicians who modify dose -- dosing have better persistency rates than those who don't. Educating physicians on the appropriate use of Jakafi is the primary focus of our field force. As part of our educational efforts, we have also focused on helping physicians identify patients who can restart Jakafi, and we have seen an increasing number of patients who were taken off therapy restart Jakafi over the past few months.

In addition to these factors, our regulatory team has been focused on working with FDA to help ensure that the label for Jakafi, optimally, reflects current information available from clinical studies of Jakafi for as broad a group of patients suffering with myelofibrosis as is possible. As you recall, because we did not initially include patients platelet counts less than 100,000 in our phase three trials, we initiated a separate study in these patients to find appropriate dosing. Interim results from this study presented at ASCO and EHA show that the majority of patients who started at a dose of 5 milligrams twice a day and optimized their dose to 10 milligrams twice daily or higher, experienced reductions in spleen size and improvements in myelofibrosis related symptoms.

We are confident that we can continue to translate the scientific advancement that Jakafi represents into tangible patient benefits and long-term growth. Some of these advancements will be highlighted at the upcoming ASH meeting, where we and our partner Novartis have 12 presentations, six of which will be oral. Two of the oral presentations describe long-term results from both COMFORT-I and COMFORT-II. While these abstracts aren't yet available, and so then I can't be specific in advance of the presentations, these results from COMFORT-I and COMFORT-II build on the previously disclosed the data suggesting that Jakafi may provide an overall survival advantage to patients who initiate therapy.

Now I'm going to briefly discuss some of the other programs in our pipeline starting with the further clinical development of Jakafi. The response trial in polycythemia vera in partnership with Novartis is on track to complete enrollment around year end with a supplemental NDA submission expected in 2014. The FDA has granted fast track designation for PV specifically for the treatment of patients who are resistant to or intolerant of hydroxyurea.

The second study in PV patients called RELIEF, evaluating symptomatic benefit is ongoing. This study is not required for FDA approval, but we do intend to submit results to support labeling claims on symptomatic benefit in PV our initial FDA application for the treatment of patients with PV in 2014.

Phase II trial of Jakafi in pancreatic cancer is on track to complete enrollment by the end of the year, and we anticipate final results of this double-blind study by the second half of 2013. Now for baricitnib, our JAK1 and JAK2 inhibitor partnered with Lilly, we look forward to the presentation at ACR later this month, of six-month data from the Phase IIb trial in patients with rheumatoid arthritis. Screening has begun for the phase III clinical program in RA.

Lilly is also conducting phase II trials of baricitnib in psoriasis and in diabetic nephropathy. We look forward to updating you further on the plans for baricitnib, together with our partner Lilly, at a meeting for the analyst community at ACR. Our earlier stage oncology programs for c-MET and indoleamine dioxygenase, or IDO, are progressing, and we can address any questions you may have about them during Q &A. And we have other ongoing clinical medical programs in oncology and inflammation. For example, with regard to our compound Incyte 39110, we posted clinical trials in myelofibrosis, rheumatoid arthritis and psoriasis to www.clinicaltrials.gov.

Before beginning Q&A, I would like to welcome Jim Daly, who has assumed responsibility for our commercial organization, including sales, marketing, and business development. Jim has extensive industry experience and has successfully launched and commercialized multiple oncology products. He joins us from Amgen, where he most recently served as Senior Vice President of North America Commercial Operations. We at Incyte feel very fortunate to have attracted someone of Jim's caliber and experience.

Jim?

Thank you, very much, Paul, and good morning, everyone.

I am really excited to be a part of this Incyte team. As you can imagine, I did my homework before joining and, based upon the learnings, I am convinced that Jakafi represents an extraordinary opportunity to make a meaningful difference for patients with myelofibrosis. Not only is it first in class, and the only FDA approved treatment for true unmet need, Jakafi simply provides remarkable clinical efficacy for patients.

That said, there are always challenges in educating physicians and patients on the optimal initiation and maintenance of most truly novel therapies. And, in my past experience with GSK and Amgen, in launching such products in oncology and other specialty areas, when the efficacy benefits are strikingly perceptible to patient and physicians, most other issues are highly, highly manageable.

In my short time it Incyte, I have been greatly impressed by the level of talent and energy within the organization, and the deep commitment to make a positive impact for patients. I'll look forward to working with my colleagues to continue to grow Jakafi and to develop and commercialize our future products.

Back to Paul.

Thanks, Jim and welcome to the team. We look forward to your contributions to our continued success. And with that, operator, let's open the call for Q&A, please.

(Operator Instructions).

Thomas Wei, Jefferies & Company.

Just wanted to see if you could provide a little bit more detail on things like the discontinuation rates, this persistency that you are talking about and also compliance rates. On a quarter-over-quarter basis, how do those look? Are we starting to see improvements in either discontinuation or compliance?

Hi, Thomas, this is Jim. Thomas, thanks for your question. Let me give you just a really brief preamble, and then we will get right to the heart of your question. First I just wanted to reinforce that we are fully committed to sharing with you our best understanding of what's going on with the Jakafi launch. From our perspective, dispenses to patients, or what we are referring to as sell-through, that is our best and most reliable measure of true underlying demand, and that's why we highlighted it so prominently, in the press release, in the black box there. And that trend underpins our guidance of $130 million to $135 million for this year. Now, with respect to secondary drivers of demand such as persistency, or what you refer to as compliance rates, or new patient starts, at this point, we really don't think it is constructive to get into specific numbers at a very detailed level, because we think it could be potentially misleading without providing the appropriate context and caveats to do with these n umbers. For instance, as you talk about persistency, their really isn't a single persistency number. It is really a curve over time in which you have to follow various cohorts of patients since the month that they were initiated on therapy.

And we are doing that very diligent, but as you can imagine, at the end of six months or nine months, some of those cohorts become increasingly small. It is also compounded by the fact that we have begun to see an increase in the number of patients who are restarting therapy, which is also a very important consideration in the dynamics. Having said that, we are more than open to provide you with as much directional, qualitative feedback as we can on issues like persistency and new patient starts. So, with respect to persistency, in direct response your question, Thomas, over the last two to three months we are seeing an improvement in the one month persistency in patients, and, as Paul indicated in the formal remarks, that is not unexpected. We are seeing a shift to a healthier patient population, as measured by their baseline thrombocytopenia and or anemia. And we are also seeing physicians who are becoming much more facile with the dose titration. I hope that answers your question, Thomas.

It does. Maybe just to follow-up, and then I'll jump back into queue. I'm having a little bit of a hard time reconciling -- if you had about the same number of new patient starts, I would actually be calculating that the sale should have been higher than what you reported, given the gross net. So, the missing factors here are the persistence and the compliance. But you are saying that directionally, those numbers improved on a quarter-over-quarter basis?

Let me qualify that a little bit more for you, Thomas. First, we are very pleased with the rate of new patient adds, as Paul indicated in his formal remarks, we have seen a consistent number of patients added month-on-month in the third quarter, relative to the second quarter. So that is encouraging. Physicians are having very little difficulty identifying new patients who are appropriate for Jakafi treatment. Now, just assuming that persistency is a plug call which is -- you're going to back into persistency, that is the single most important lever from our perspective going forward in order to increase overall demand. And we are focused on that very diligently, and we are seeing early indications of improvement. But again, I think it's too early to try and quantify those trends.

Okay, thank you.

Matthew Roden, UBS.

Congrats to Jim and to the Company for finding each other. It seems like a good fit. So, Jim, maybe a question for you. We appreciate your take from an outsider's perspective on the organization, but I'd be curious to understand what you like about the operation that you see and where you see opportunities to do things a little bit differently. How would you put your stamp on the organization?

Hi Matt, first of all, Matt, thank you very much for the question, and I fully agree with you. It really is the match made in heaven, and I am thrilled to be here, both for the nature of this opportunity, but also because of the culture that I have found in the past couple of weeks. In terms of what is most important, to me, in terms of adding value to the organization, three things. Jakafi, Jakafi. Jakafi. And we really feel a sense of urgency to make sure this product is made available to the patients who will experience profound benefits. So I am looking forward to working very closely with the sales and marketing organization, spending a lot of time out in the field with our representatives and with the customers to get a first-hand understanding of the market, a first-hand appreciation for the opportunities, as well as the barriers in making sure that we're doing everything we can to optimize the successful trial. So that we get the right dose, right patient, with the right expectation, and thereby earn the right to come back to physicians and ask them to put more patients on the product.

Okay, that's helpful. And then just one follow-up if I may, to Paul or Rich. I am intrigued by the title in the ASH abstracts here, on long-term follow-up, because, when we talk to community oncologists anecdotally, what they say is that longer-term follow-up on survival is imported for expanding utilization into less severe patients. So, maybe, guys, just to manage our expectations a little bit, do you think the data forthcoming are going to be supportive of increased use or less supportive? How should we think about that?

Well, we would probably not have highlighted both COMFORT-I and COMFORT-II in that way, if the data was, in our opinion, not going to be supportive of a survival benefit in both studies. But, what would you say, Rich?

We are kind of limited because of the abstracts haven't come out yet.

I think the abstracts our scheduled to come out on November 5. So a short period of time before the level of clarity from the abstracts themselves and then maybe a little bit more details at the actual presentations, but we really look forward to that data because we totally agree that the more people are convinced that there is a survival advantage, the more likely they will not only start on less severe patients but the harder they will work to titrate the doses to keep patients on drug.

Okay, thanks for your perspective.

Salveen Richter, Canaccord Genuity.

Just in terms of the education to restart Jakafi. Just wondering if you could remind us which the reason patients drop off, and then which of the patients who dropped off would be candidates to restart therapy? And then you also mentioned about 30% of your targeted physicians now prescribed Jakafi, just trying to understand what's playing out with the other 70% as to why there not prescribing it? Thank you.

I will start, and then I'll pass the baton to Jim. The major reasons for a dose hold are either your platelet counts go to low, or your red count goes lower than the physician or the patient is comfortable with. You can then -- you have a dose hold, which is what we did in the clinical studies, until the counts rebound. And then you start again at a lower dose and work up to an optimal dose. It is a joint effort between the patient and the physician to titrate to a proper dose. If you work at it, the vast majority of patients can find a tolerable and very effective dose. And, as we have gone out and provided further education to physicians, there is a greater and greater willingness, as evidenced by the numbers, to restart patients that they have stopped for a cytopenia. And e are anticipating that over time that number will continue to increase. Jim?

Paul, I think from a patient -- from a sales force perspective, our responsibility is to remind physicians that this is not a one-size-fits-all product, and that the benefits of titrating patients to the optimal dose are certainly well worth the upfront investment of time on the part of physicians and patients. So I think that is a fairly straightforward exercise, and we are committed to implementing it extremely well. Now to the second part of your question, which is a third of our prescribing audience -- of our target audience have prescribed Jakafi, what's going on with the others? Our market research indicates that the single most common reason for not having prescribed the product is that they simply have not encountered an appropriate patient yet. So, we're confident with continued efforts that we will be able to increase there adoption of Jakafi. Intent to per scribe was an extremely high when we talk to these physicians and asked about their intent to prescribe going forward, that's a very encouraging metric for us.

If I could just follow-up on the patients who discontinued, and you're trying to get to restart, is there a pool of patients that you don't see capable of restarting, I mean apart from patients that have stopped treatment due to death. Is there any other group?

This is Rich. It's hard to say in every single case, but or the most part, why patients have stopped is because they have not necessarily titrated to the right dose. And so I think that the key is to educate those physicians as to the data that we now have suggesting, for example, 10-milligram BID dose is a very effective does. It doesn't cause cytopenias for the vast of the majority of patients and to try to get back to those sorts of things. To speak to every single patient without knowing the details, I can't be sure.

Okay, thank you.

Cory Kasimov, JPMorgan Chase.

Thanks for taking the questions -- two of them for you. One is a follow-up first on the survival question. Because we're also finding that docs are largely unaware of the survival data presented at ASH or what was published in Blood which is preventing them from putting their less symptomatic patients on therapy. So, do you expect to can ultimately try to get this longer-term follow-up data that's to be presented at ASH added to the products label? And then the second question is another one on persistency. You mentioned that it is improving partly because physicians have become better informed on implementing dose titration. Can you just talk a little bit about the educational efforts that are necessary there and how complicated this titration is?

Yes, so this is Rich. I think part of the reason that the message may not have gone through as well as we ideally would have hoped in the past around survival is that there were naysayers out there who were saying, well you only have an advantage over placebo in COMFORT I, but you do not have an advantage over the best available therapy in terms of survival in COMFORT II. And so, with people speaking against this, at the same time that people were speaking for, I think the message got diluted. I think that there's a reasonable chance that if the COMFORT II data were to show a survival difference, that there would be much more of a consensus among thought leaders that this really is true and that will then get down to the level of the community physician who is treating the majority of these patients.

With respect to adding this to labeling, I think that is still going to be very difficult, given that the studies really weren't planned, we didn't think that we had the opportunity within these relatively small short-term studies during the control period to be able to demonstrate this, and so at some point we will provide the data to FDA in a package and let them evaluate it. But I think the chances that this would actually lead to a true labeling claim at this point are small. And I will point out that there is histories of drugs that have done very well, based on the type of data that gets out into the literature on survival without actually getting the claim. Was there a second part to your question that I missed?

Just on the persistency -- the education around the dose titration.

So, I mean just in terms of the titration -- our labeling does indicate that titration is an appropriate approach, but does not get into a great deal of specifics, other than titrating for thrombocytopenia. And so we think it's also important for those who were more concerned about thropic hemoglobin levels to know what they can do in the shorter term to get those hemoglobin levels up without necessity for holding dose or transfusing. So we have data out there in the scientific community. We continue to talk about that as scientific exchanges in responses to request for information, but the sales force can actually go out and talk quite a bit about the need for titration, which is on label information.

Thank you.

Rachel McMinn, Bank of America Merrill Lynch.

Thanks very much. I wanted to go back to the discontinuation question, but ask it a little bit differently. It sounds like there are two basic discontinuations, right, where you have patients who are very ill and drop off because they are cystic, and they are dying. But then you had this other cohort of patients that are discontinuing, because physicians just don't know how to titrate properly. And I just qualitatively, if you can give us a sense of is that kind of half and half, or is it predominantly one versus the other? And then, I also wanted to ask, Jim, since you're here, and you have had, it sounds like some chance to really dig in here, what do you think needs to be done differently, if you can kind of speak to getting these patients more urgently on drug? What other programs or messaging needs to be done to be more effective in the sales force mix?

So I'll start and then Jim can answer the second part of the question, or elaborate on the first part as well. Early on, as we have said on multiple occasions, the patient mix was much more heavily weighted toward patients with platelet counts less than 100,000. They also were early on being dosed with 15 milligrams and 20 milligrams twice a day, which was too high a dose for people with less than 100,000 platelets. So there are two things that have happened with respect to the overall population. One is, the week-over-week mix of patients with platelet counts below 100,000 versus those above 100,000, now has significantly fewer patients who are coming in below 100,000. But beyond that, the message that we have taken out into the field from our presentations at ASCO and EHA, as how does people who come on Jakafi with an additional platelet count of less than 100,000 is getting out. Because we are finding in discussions with physicians who start such patients, that they now are beginning the patients almost always, certainly in a majority of cases, at 5 milligrams BID and working their way up to 10 milligrams. So you have a change in the percentage of the really fragile patients in the mix every week, and for those fragile patients, they are being dosed more appropriately with a lower starting dose. So, in both instances, what you would predict and what we are beginning to see are improvements in persistency. Jim?

Rachel, to your question about the adjustments we would make going forward. Let me first say that I have been extremely impressed by the professionalism and the sophistication of the launched plan for Jakafi as well as the execution. I think the team has done a first-class job preparing this product for launch and executing extremely well in the first nearly a year after launch. As I look at the biographies of our sales force, we have been very fortunate to recruit the brightest and the best people with deep, deep oncology experience. So, beyond that, I think it is premature to say what are the changes that we would be looking at making, other than the fact that I have never seen a launch where you have not had three months, six months, after launch to go back and to make some adjustments in terms of your key launch assumptions. There is always a gap between theory and reality. You go back, you make the adjustments, you fine tune the plan and you go forward. And I think we are in the process of doing that right now.

Great, and then just one quick follow-up for Paul or Rich. On your JAK1 program, I'm just curious if you have any more comments with regards to inflamm versus myelofibrosis. I would expect something with very limited JAK2 selectivity to not work in MF but clearly you feel differently because you're running a study there. What are appropriate expectations in that setting? Thanks.

First of all, 39110, a JAK inhibitor with a different profile than ruxolitnib. We're putting it into studies for which we already have data with our JAK1, JAK2 programs to be able to compare how that profile differs in diseases that we understand, and in where we can get data in a relatively short period of time. And those results will then determine whether or not we proceed further with those studies or go into different types of indications. And beyond that, in the absence of data, I don't have any further comments.

Okay. Thanks very much.

Eric Schmidt, Cowen and company.

First I'd like to confirm or hope to from confirm that you have all weathered Hurricane Sandy well enough down there and there haven't been any supply chain disruptions of any sort.

We're fine. Thanks, Eric, for asking.

Great. Maybe a follow up to Jim's statement. He mentioned that he was fully committed to sharing with us all aspects of Jakafi's launch that he can. Does that many as a different view towards unblocking the third-party prescription data?

Eric, most likely not. We are being 100% transparent in terms of dispenses to patients. And we think that really is the key metric going forward.

Okay, and then maybe a follow up for Paul. It is a little unclear to me on what impact that you think this FDA label change might have that you sought in terms of low platelet count patients. I know you filed for getting the new dosing data on the label. But it also sounded to me like you think you might have everything you need already. So I guess the question would be one, what timing should we look for to in terms of an FDA label update, and two, is this critical, or as you've kind of insinuated, do you pretty much have what you need to make headway with the low platelet count patients today?

I think that's good insight into what I was saying, because we have made a lot of inroads into educating appropriately. I will let Rich answer about the label. It is always better to ultimately have something in the label, but, in the meantime, we have made great strides in getting these patients on the right does.

Yes cause so I would just reiterate that I think it is better to have it in the label. It creates more opportunities to reach physicians who don't take part in educational exercises and don't ask additional questions, that sort of thing. In terms of the timing, we submitted in August, and we are still waiting for a definitive FDUCA date, but the FHA has indicated in the past that they would continue to work with us to do this as soon as reasonably possible.

Thank you.

Brian Abrahams, Wells Fargo Securities.

Jim, welcome to the team. I want to shift gears to baricitnib. With the phase IIIs now getting going, I was wondering -- and posted on clinical trials, I was wondering if you could talk in a little more in detail about the designs overall and the powering of the studies -- really, what your aiming to do, maybe similarly versus differently from other RA programs. Might there be more studies that we should be looking for? And if you could give us any sense of the timelines there?

So I really can't get into specifics until the analyst meeting -- the joint analyst meeting that will take place at ACR. I think those imitations have gone out. I cannot remember the exact day, but it is the evening of the actual presentation of the Phase II study. Just in general terms, I would say that the studies will cover a range of patients from those that are TNF or biologic experienced to DMARD to methotrexate experienced to naive patients with the attempt to get a broad label NRA. I would also say that, as we have said before, that certainly the program was tweaked, based on the findings at the advisory committee for tofacitnib, particularly around their findings around structure to make sure that we had adequately powered studies there. And, I think that the nuances are key, and hopefully we will have more information around that and an opportunity to ask more detailed questions around this. And Pam just showed me that that date is November 13.

Great and then maybe just a quick follow-up. Can you speak to the role of JAK inhibitors in diabetic nephropathy, what you see as the market opportunity there? And maybe if there's any differences in the economics within the partnership for that indication?

Sure, Paul should I take that? First of all, it is quite clear that there is inflammation in the kidney and that there is elevation of JAK levels in the kidney in diabetic nephropathy, and so a drug that can treat this potentially can have real beneficial effects in terms of maintaining renal function in patients with diabetic nephropathy. And, if that actually works, than that is a massive opportunity that makes even things like RA pale in comparison according to the information we've been given from Lilly, which I cannot get into any more detail than that. In terms of the economics, the deals are the same regardless of what we do, which is we get to see phase II data before we have to make a buy-in decision. They are doing this trial now, which I believe is posted on www.clinicaltrials.gov. And we will see results from that study before decide whether we are going to pay 30% of the going forward costs for that study. And so that is a very -- that's one of the reasons we did the deal with Lilly is because we get to pick and choose where we put our money based on actual proof of concept results.

Thanks very much.

David Friedman, Morgan Stanley.

Just two quick ones. Number one is, in terms of the patients as this quarter, can you give some sense of the breakdown of what were truly new to drug patients versus patients who had dropped off previously and restarted? And then, the second question is, if you can just describe, maybe, what the difference is between the FDA's threshold for recognizing data and what you think the clinical community is -- has a threshold for? Do you think that these survival data can't potentially have a clinical impact but maybe not necessarily meet the threshold of either quality or whatever for the FDA to put it on a label?

Hi, David, this is Jim. I don't want to get into a quantitative description of the components of total patients in the past quarter. I think it is fair to say that the bulk of the patients in the past quarter were repeat patients. We had a fairly significant proportion that were new, and the smallest the proportion would be new patient adds -- would have been restarted patients.

Yes, so in terms of -- in terms of survival data in the package insert, the traditional approach is you design a study or studies for survival, you define exactly when you are going to look at the data and spend your alpha, so to speak. So if you do more than one analysis, you can't -- you have to describe in advance how you are going to say I'm going to spend -- let's say you start out with a target of p-value of 0.05 -- if you look more than one time, you have to distribute that. In this case, we did not envision that within a six-month trial for COMFORT I or a one-year trial for COMFORT-II, with allowance of crossovers, even within those studies for patients that were doing poorly that we really had any chance of showing survival. And so, in terms of alpha spend, so to speak, we haven't left alpha to continue to spend for these new analyses. And I think it is for that reason that it is a low likelihood that FDA would say, okay you have demonstrated a survival benefit. But if you consider the hurdles that we were up against here, designing studies that were too small, we thought were too small for survival, allowing for crossover which will tend to make things equal, not different over time, and also the fact that in COMFORT II, there were patients who were lost to follow-up and never able to find out whether they were alive or dead call early on because the protocol did not allow those patients to be followed. And the majority -- the clear majority of those patients were patients who were on [VAT] who we could not say died sooner. All of those are hurdles, and, despite that, we are seeing the data that we haven't actually showed you yet, updated, but as you can obviously surmise, positive data despite that. And I think as we get that across to -- all of those things across to the community, including that it's better than available therapy, I think it will have a significant impact your but perhaps not as great as if it were in the label and we could actively promote it. And that is just -- it is better than where we were, that's for sure.

Okay, thank you. And then just to be clear on the first question answered. You said the majority our new to drug, or the majority restarts?

The majority -- if you take a look at our total base of our patients in the third quarter, the majority are repeat patients. There is a significant component that are new, and finally there is a smaller component which is patients who are restarting therapy.

Okay, thank you.

Ian Somaiya, Piper Jaffray & company.

I had a couple of them, first just starting out with the severely ill patients which you have previously identified as a source of increased rate of drop off this year versus next year. Could you share with us where we are in the process of potentially seeing these patients? Whether they are still on therapy, or are the vast majority of them close to coming off therapy? Then I have a few follow-ups.

Well, certainly some of them are on therapy, and we are hoping that now that they have been titrated to appropriate doses, that they will be able to stay on for extended periods of time. It's kind of a spectrum, again, where I cannot give you a specific number, Jim, do you want to add anything to that?

No. I agree with that.

Second on the baricitnib phase III program in RA, just given the comments you made related to the tofa panel, should we assume the size of the phase III program is comparable to tofacitnib, or do you think -- should we assume it's larger?

I think what I was implying was that the structure study is now powered based on their very slow rate of prescription in the control group and so that that study may be larger. But I am not commenting on the overall size of the program including all of the other studies. I think you will get a much better sense of that when Lilly talks about it, and we will be there on November 13.

Okay, and the last question was on the survival data. Is there any sense of urgency either at Incyte or at Novartis to run a study to confirm an overall survival perspectively on a study and try to get that on the label?

It would be extraordinarily hard to do that these days. You know, I think with the data out there that there is almost certainly a survival benefit. To randomize patients and not let them cross over would be perhaps, unethical. My view is that it would be, but also impractical. So, it is kind of a double-edged sword, but we are happy to see that even within studies that would have a very difficult time demonstrating this, that it really would be, in my mind, unethical to randomize patients to have to stay on therapy other than ruxolitnib.

But that's a challenges I should think is true for you as well as your competitors?

Absolutely.

Okay. Thank you.

Josh Schimmer, Lazard capital marketing.

Going back to diabetic nephropathy, it might be a large commercial opportunity, but I'm wondering why this indication would be prioritized, given that the development path to maybe even prospects for success seem rather [kildly] at least in comparison to other potential phase III indications -- phase II inflammatory indications you could have chosen to advance further or faster.

Yes, I don't think it is to the exclusion of those other indications. There is obviously particular interest at Lilly in diabetes. And we have -- I think Rich outlined briefly the rationale -- I think the Lilly people could get into it in significantly more depth and if you wanted to pursue it with them, Josh. It does not preclude studying what you are referring to as the more obvious inflammatory diseases.

Any thoughts on when we might see those other phase II indications advance or be announced?

I think you would have to talk to -- with Lilly about that.

Got it. Okay. Thank you.

David Krempa, MorningStar.

Can you give an update on the peer environment? I think last quarter you said you had pretty broad coverage, but two thirds of patients were requiring prior approval, and that was causing a slight slowdown in the uptake rates?

This is Jim. Actually the reimbursement situation is absolutely positive for this product. Right now, we really do not see reimbursement as being right limiting to putting patients on the product. If you want to break down by payer, we have 50% Medicare, 30% commercial, and 10% will be kind of the -- your VA, et cetera. So, we have a very, very favorable reimbursement environment with Jakafi.

Great, thanks.

Ying Huang, Barclays

I have one question on -- can you give more color on the breakdown between the patient with high risk versus intermediate risk who are on therapy of Jakafi? And I have a financial question as well. Obviously Lilly has already started enrolling the patients in October for baricitnib. Can you guys give us an estimated cost for the phase III and your share? I think you have to share 30%. How should we think of the R&D costs n the next two or three years?

Let me -- I will deal with R&D question. Yes, we cannot get into specifics about what the investments will be over the next two or three years with Lilly. What I can say is that they have been fairly consistent in terms of the budgeting process what those numbers look like will be first even negotiated the deal. We would expect R&D to go higher next year, primarily driven by that investment. You will see that increase in '13 and '14, and it will start to reduce in '15.

Can I just to that? I think that the money that we are spending as our 30% NRA with Lilly is money very well spent. The drug looks really, really good. We're very excited about this, and we can afford to do it there,.

With respect to your first question, we have a nice mix of intermediate 2 and high risk patients. I do not have the breakdown in front of me here, but the majority of the patients who have been put on Jakafi are would be categorized as either intermediate 2 or high risk. But we are seeing a -- we are seeing a proportion of patients in the intermediate 1 category, which I think is encouraging.

Before we close up, I want to clarify my answer to the previous question. The question was, how does your peer environment look, and what is your reimbursement mix? So let me clarify that. 50% of our patients are commercial, and right now commercial payers are somewhat reluctant to create barriers for an orphan indication like myelofibrosis. 30% of our patients our Medicare, and the issue there, because folks are paying most of those patients are paying on part D, is the donut hole. And we been very successful in helping patients navigate through the donut hole. And then, finally, the remaining patients are a mix of VA, military, et cetera. So I hope that clarifies the earlier response.

Boris Peaker, Oppenheimer.

One quick clarification. The numbers you just mention on Medicare versus commercial, could you clarify that 50% Medicare or 30% Medicare?

It is 30% Medicare.

30% -- okay, great. The other question, the general question, we talked about a number of data pieces that are going to be coming out and that may help Jakafi in the market. Could you comment how long do you think it takes to communicate the details, let's say from the ACR abstracts to the physicians? And then what your expectation is for that data in terms of time to be incorporated into actual prescribing behavior?

Well, I can speak to the question with respect to oncology and hematology. We will have ASH meeting in December. There are typically ASH reviews that follow immediately thereafter, and this community is very quick to pick up on new data.

But, can you give a quantitative time period let's say after the abstracts are available and your sales guys could start marketing the information? Is it one quarter that you anticipate to see some impact? Is it six months, a year, just some kind of a quantitative ballpark?

I would be careful about false precision. But generally take a look at an ASCO meeting or an ASH meeting, you will start to see a change in prescribing within one or two quarters after the meeting. But yet it takes time -- it takes time for physicians, particularly when your dealing with a condition like myelofibrosis, what's right limiting -- is the next time a physician happens to see an MF patient.

Got it. My last question is in terms of support groups, there are at least two major support groups for myelofibrosis. Are you working or how are you working with these support groups? And how do you see that in helping in identifying new patients as well as maintaining current patients on drugs?

We are working very intensely with the patient advocacy groups. There's no better catalyst for patient requests that an MF patient hearing about positive response in other patients. As a matter of fact, recent market research we have conducted have indicated almost 40% of patient trials have entered as a result of a patient request for the product. So clearly these patients are talking to each other and sharing experience, and we're trying to support that is much as possible.

Thank you for taking my question.

David Friedman with Morgan Stanley there.

Thanks, it's a been answered.

Liisa Bayko, JMP Securities.

A question for Jim. As you look at the profile of baricitnib and tofacitnib, could you talk about maybe the key attributes of baricitnib that you think are really going to stand out and how, from a marketing respective, you would really use those to differentiate the two products?

I'm going to -- thank you for the question. I'm going to pass it over to my colleague, Rich. What I can say very early, is there is an X factor for oral. If you look at the RA market, there's at least 10% to 20% that refuse therapy with a TNF because it is injectable. Clearly there is an X factor for oral. And then depending on the clinical study, the label, and the price, I think that will determine the point of entry of JAKs into the RA market. And then I'm going to ask Rich.

So, Lisa, I think also Lilly might comment on this next in a couple of weeks, but I think the things that are clear, already are once a day versus twice a day, and reduced number of drug interactions because this drug is -- does not have -- it's not clear that [illidrum] does not have the fifth enzyme inhibitions and interactions that tofacitnib does. I think the potential, which needs to be proven in large phase III trials, is that it may have a better safety profile in terms of infections because it is not a JAK3 inhibitor. Some of our data suggests, that we may actually have more profound responses in phase II than they did, but it is really unfair to say that we know that that is going to hold up based on trials that were one, not comparative and were only a few hundred patients. But I think we have enough there that there will clearly be a substantial market for baricitnib. And the potential that it could, actually, be the number one JAK inhibitor for RA and potentially others. If some of those potentials for the data come through, despite a launch a few years later.

Okay, that's helpful. And then just maybe a follow-up as you -- to the broader oral market, as you see the orals come to the market and you look tofacitnib, do you think this will move up to kind of front line? It makes sense that you would use oral ahead of TNF but obviously there's more experience. Just thought on (multiple speakers)

Yes, so front line is largely methotrexate. But the question, and I think it's going to stay that way in part because of payer preferences to start with something cheap. And also the fact that physicians are comfortable with the toxicities of methotrexate, although there are certain people who can't take it, and there is some use and first line. I think the key is using this before anti- TNF or other biologics. My expectation is that Pfizer will blaze that perhaps to a certain extent for the class. And so they may start off being used primarily after at least the first, if not more than one TNF, but as the safety of the class becomes more clear and people becomes more convinced of the efficacy by using it themselves, the fact that it is an oral drug and some of the other advantages that it has that we kind of talked about, I think the real goal is to be able to say that this would be after failure of DMARDs or methotrexate for the most part, but would still then be used, and we will have clinical data that it can be used after failures of TNFs.

Thank you.

Ian Somaiya, Piper Jaffray.

Just a question on baricitnib versus [ureon] follow on JAK inhibitor. Can you just give us a sense of how differently you need the follow on JAK to be in for you to pursue development in RA and psoriasis.

I'd say --Rich can add to that, I don't think we can -- I don't think we can give you a parameters at this point until we gather some data on this JAK inhibitor with a different profile.

But if you look at things like the anti-TNF market, there are a number of anti TNFs, certainly the first one is no longer -- maybe it actually still is, I'm not sure which sells more uemura or [relic].

I'm totally biased in this answer, but it is enbrel.

But still you would not sneeze at the market that a drug like you uemura has.

Absolutely.

I think those differences between the anti-TNFs are not enormous in my mind. And so, I do -- I personally don't think you need huge differences to do really well in this area, but as I said, in answer to Liisa's question, I think there is a potential for substantial differentiation and a clear expectation of enough differentiation.

I think there's just to parameters to the question. One is obviously I think we all appreciate the magnitude of the opportunity, but also are mindful of just the costs cost associated with bringing another RA drug to the market and whether, as you mentioned, put your words, we can afford to run or support a baricitnib program as well as pursue development independently -- NRA. Is it an either I or decision from financial perspective? Or do you think you can comfortably pursue both?

I think we have optionality, Ian, and we are at the point now where the earlier stage program, we certainly have the capital to continue to progress that. And then as the data becomes more apparent, we can make strategic decisions at that point ear.

Okay. Thank you very much.

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

Okay, thanks very much. We appreciate all of you who our dialing in and the questions, and we will look forward to talking to you again in February on our fourth quarter call. With that, good morning.

Ladies and gentlemen this concludes the teleconference. You may disconnect your lines at this time, and thank you for your participation.