英賽德 (INCY) 2012 Q4 法說會逐字稿

Greetings ladies and gentlemen welcome to the Incyte Corporations fourth-quarter and year-end 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, Communications. Thank you, Ms. Murphy you may now begin.

Good morning and welcome to Incyte's fourth-quarter 2012 conference call. With me today are Paul Friedman, Incyte's President and Chief Executive Officer; Jim Daly, Executive Vice President and Chief Commercial Officer; Dave Hastings, Executive Vice President and Chief Financial Officer; and Rich Levy, Executive Vice President, Chief Drug Development and Medical Officer.

The agenda for the call is as follows. Paul will begin with a brief overview of the quarter and full year, particularly regarding the launch of Jakafi and share of what we expect in terms of product revenues for 2013. Jim will follow with a full update on the launch and ongoing commercialization of Jakafi. Paul will then provide more detail on the pipeline, followed by Dave we will describe our fourth-quarter results and 2003 (sic - 2013) financial guidance. After that we will open up the call for Q&A.

Before beginning we would like to remind you that some of the statements made during the call today are forward-looking statements, including statements regarding our expectations for the commercialization of Jakafi, our development plans in other indications and our 2013 financial guidance. These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our Form 10-Q for the quarter ended September 30, 2012, and from time to time in our SEC documents. Paul?

Good morning. We'll start the call talking about Jakafi. But you can see from our financial guidance for R&D expenses, that we're investing in much more than one product. Thanks to our extensive R&D efforts we have a robust pipeline that includes additional, potential indications for Jakafi, as well as potential indications in inflammatory diseases such as rheumatoid arthritis for our second JAK1, JAK2 inhibitor baricitinib, which is being developed as part of our partnership with Lilly. We're also continue to invest in our early-stage program, including our proprietary JAK1 inhibitors. We are confident that our pipeline will enable us to succeed as a growing biopharmaceutical company. That said, we certainly appreciate you wanting to hear up front about the status of Jakafi for myelofibrosis.

In 2012, we built solid foundation for Jakafi as the first approved treatment for patients with intermediate or high risk MF, through the year we saw consistent and growing numbers of physicians use Jakafi and we saw consistent and growing number of patients benefit from treatment with Jakafi. Given these trends, we expect to see steady growth in treating this MF population over the next several years, and for 2013, we've set our net product revenue guidance in the range of $210 million to $225 million. This range reflects our expectations of the ongoing evolution of the myelofibrosis market, including more physicians initiating Jakafi for new, appropriate patients and more physicians, and patient successfully continuing Jakafi therapy as long as they experience clinical benefit. I'm going to now turn the call to Jim, who will further describe how our guidance represents a continuing sustainable demand.

Thank you, Paul and good morning, everyone. Our growth strategy for Jakafi in MF to add new patient starts at a healthy rate, while keeping patients on treatment longer yielded strong results in the fourth quarter. I would like to thank our commercial and medical teams for their tireless efforts in educating physicians on the optimal use of Jakafi to benefit patients with intermediate or high risk MF. In terms of our quarter over quarter growth, when you exclude the $9 million in deferred revenue recognized in the third quarter, the adjusted net revenues grew by 25% with the following components of growth. Underlying demand as measured by dispensed bottles grew 17%, inventory, 4%, price 4%. In the fourth quarter, new patient starts remained relatively stable and our favorability to revenue guidance is attributable to early signs of improved persistence. We continue to see increasing use of lower dosage strengths which are driven by physicians individualizing treatment, in particular by starting patients at appropriate doses and titrating downward as necessary.

Our market research indicates that dose titration leads to increased persistent. The increased use of lower doses is a direct result of our educational efforts and increased physician experience with Jakafi, and we expect this trend to continue in 2013, driven by rapid and appropriate follow-up by our field sales and medical teams with new prescribers, enhanced outreach to patients through our IncyteCARES patient support program, and specialty pharmacies, and the publication of additional dose titration data from ASH. ASH was an important meeting for Jakafi. Not only did the meeting present additional new data to support individualize dosing, but also it presented data on overall survival. This new information should help to motivate physicians to identify additional, appropriate MF patients in their practice and to work to keep them on treatment. Additionally we now have data from our studies of patients with low platelet counts and we expect additional information in our label sometime in the second quarter that will provide greater clarity on starting dose for these patients.

Our 2013 guidance reflects our confidence that we have substantial growth opportunities and meaningful catalyst at both the physician and the patient level. 12 months post-launch we continue to see a steady increase in new prescribers, and we continue to see an increase in the number of physicians prescribing Jakafi for multiple patients, with one-third of prescribers having written for two or more patients. Currently roughly 50% of new patient starts come from new prescribers, with the remaining 50% coming from repeat prescribers. We are confident in our ability to continue to increase both breadth and depth of physician prescribing in 2013.

At the patient level, we continue to believe that the total population of patients with MF is between 16,000 and 18,500. And our addressable population of diagnosed intermediate or high risk MF patients is approximately 15,000. Growth opportunities at the patient level include the following. Educate and motivate physicians to identify appropriate new patients, including those who are JAK mutation negative but are still indicated and will benefit from Jakafi. We start discontinued patients at a lower dose where appropriate and maintain patients on Jakafi longer through individualized dosing and titration, especially during the first 8 to 12 weeks of treatment. Our guidance of $210 million to $225 million reflects consistent growth in dispense bottles, largely driven by new patients, and a realistically achievable improvement in length of treatment for continuing patients versus 2012. Furthermore, we anticipate that these market dynamics will enable consistent growth for Jakafi well beyond 2013, and at least until our next potential growth driver, the PV indication. With that I will turn it back to Paul.

Thank you, Jim. While we are the first approved therapy in myelofibrosis, Jakafi has potential in additional hematologic settings as well as in solid tumors. The most advanced of these settings and trials are in polycythemia vera and in pancreatic cancer and we are studying Jakafi in two Phase III trials in PV. The first trial, RESPONSE, being conducted under an SPA in partnership with Novartis is now fully recruited, which keeps us on track to submit a supplemental NDA in the first half of 2014. The FDA has granted Fast Track designation for PV and that specifically for the treatment of patients are resistant to or intolerant of hydroxyurea. The second trial in PV is called RELIEF, and that's evaluating symptomatic benefit; the study is not required for FDA approval, but we intend to submit results to support labeling claims on symptomatic benefit in PV.

Beyond MF and PV we are looking forward to results in the second half of 2013 from an already fully recruited Phase II trial, studying Jakafi in patients with pancreatic cancer, in which overall survival is the primary endpoint. Looking at our second JAK1, JAK2 inhibitor baricitinib, which is licensed to Lilly, we see significant potential value in multiple chronic inflammatory conditions, starting with rheumatoid arthritis. The Phase III RA program began in November of 2012 at the time that the results of the Phase IIB trial we're been presented at the American College of rheumatology annual meeting. These results coupled with a well-designed Phase III program give us confidence that baricitinib has the potential to be positioned as best in class in RA. Baricitinib is also being explored for its potential to treat psoriasis and diabetic nephropathy, and Lilly is conducting Phase II trials for both conditions.

Our knowledge of and commitment to the JAK inhibitor space extends well beyond these two compounds. We look forward to advancing our earlier stage JAK1 inhibitors, such as are compound INCB 39110, for which we are conducting proof of concept studies in myelofibrosis, rheumatoid arthritis, and psoriasis. We expect to further expand the therapeutic potential of the JAK inhibitor class as a whole and ensure that Incyte retains a leading position in this space. In additions to our JAK programs we have other compounds in development, such as our earlier stage oncology programs for c-MET, or c-MET inhibitor, partnered with Novartis, and the indoleamine dioxygenase inhibitor in development for melanoma and ovarian cancer. We continue to maintain a robust, focused discovery program that examines three to four targets at a time, primarily focused on oncology with some potential overlap in inflammation.

Given the depth of our pipeline and the productivity of our R&D team we believe it's important to continue our investments in both the existing and future programs, which should lead to important new medicines. I am now going to turn things over to Dave who walk us through some of the financials, including more details of 2013 expenses.

Thanks, Paul and good morning, everybody. I'll start today by discussing Q4 results and then I'll review our 2013 guidance. Let's begin with cash. We ended the year with $228 million in cash and investments. This amount excludes the $50 million milestone paid by Lilly in January related to the initiation of Phase III studies for baricitinib.

Now moving to Jakafi, we recorded $43.3 million of fourth-quarter and $136 million of full-year 2012 net product revenues. Additionally, we recorded $3.7 million in Jakavi product royalties from Novartis for sales outside the United States. Our gross net adjustment for product revenue recognized was approximately $3.2 million, or about 7% for the fourth quarter, and $10.7 million or approximately 7.5% for the full year 2012. As a reminder, our gross net adjustment includes the following fees to our specialty pharmacies, rebates, the 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 for both the fourth-quarter and full-year 2012 was immaterial, as our starting finished goods inventory was previously expensed as R&D prior to FDA for approval. In terms of operating expenses, SG&A was within expectations while R&D expense came in below our guidance.

Now moving to 2013 financial guidance. As Paul mentioned, our Jakafi net revenue is expected to be in the range of $210 million to $225 million. In terms of our gross to net adjustment we expect that to range from 8% to 9% in 2013. Note that because of our portion of the Medicare donut hole the first quarter's gross to net may be in the high end of that range. In terms of contract revenues we expect $66 million in revenue from the amortization of the upfront payments received under the Novartis and Lilly agreements. For milestones, we expect to receive $60 million under the Novartis collaboration for EU pricing approval for Jakavi in specific countries.

In terms of royalty revenues, while we are not providing 2013 guidance, now that we're receiving royalties from Novartis we are able to describe the overall royalty arrangement we have with them. Our tiered royalty rate from Novartis ranges from the high-teens to the mid-20%s on net sales of Jakavi outside the US. Additionally when Novartis receives pricing reimbursement approval in specific European, countries we will begin to record tiered, low-single digits royalties payable to Novartis on net Jakafi sales in the US. These royalties will be recorded in cost of goods sold. Therefore, we expect the total cost of goods sold as a percentage of net Jakafi sales in 2013 will be about 2%. As steady-state, when we are using the inventory that has not been previously expensed, we expect cost of goods sold to be in the range of 4% to 6%, which includes our royalty payments to Novartis.

In terms of 2013 R&D expense, we expect that to range from $260 million to $270 million. This includes non-cash stock comp expense of approximately $25 million to $28 million. Our increase in R&D expense from 2012 is primarily due to higher codevelopment costs for Phase III studies for baricitinib in RA, the expansion of our proprietary JAK1 inhibitor program, and increased investment in medical affairs for our continuing medical education in support of Jakafi. In terms of SG&A expense, we expect that to range from $100 million to $110 million. This includes non-cash stock comp expense of $14 million to $17 million. The increase is primarily due to increased sales and marketing investment in support of Jakafi.

We expect our interest expense this year to be $47 million, including a non-cash charge of $28 million related primarily to the amortization of the discount on the 4.75% convertible senior notes. So with our strong cash position and now multiple sources of cash flow, we believe that we are in a strong position to fund continued growth. And so with that, Paul I will turn the call back to you.

Okay, so before we open the call to questions, I just want to remind you of our goal for Incyte over the next five years. That is to build a sustainable, diversified, high-growth pharmaceutical Company. As we entered 2013, we're confident that we have the increasing financial and human resources we need to execute on this vision, and we believe we will drive substantial value for patients, doctors, our employees, and our shareholders. So now we'll move to Q&A and open the call for questions.

(Operator Instructions)

Matt Roden, UBS.

In your prepared remarks you spoke about early signs of improved persistence, and your guidance has realistically achievable goals in patient retention 2013. Can you be a little bit more specific as to what you are seeing in the clinic now? And whether or not this is related to improved patient mix, vis-a-vis the initial bolus of high-need patients, and whether or to what extent this is related to the dosing information that you guys had at ASH and how these factor into your view on 2013?

Hello Matt, this is Jim. Matt I think the best single indicator that physicians are becoming more facile with the dose is looking at the dose mix. And we've seen a steady increase in the utilization of the 10-milligram and 5-milligram tablets. As a matter of fact for the first time recently on a year-to-date basis we've seen 10 milligrams becoming the most frequently dispensed dosage form. So that's probably our single most tangible piece of evidence that doctors are responding to the titration information from ASH, and using it to incorporate more individualized dosing into their practice.

And I presume that that is sort of correlating with lower discontinuation rates over time?

It's preliminary, Matt, but again the favorability we saw in the fourth quarter versus our guidance, that was not attributable to new patient starts. That was attributable to patients staying on treatment longer.

Okay, great. And then on the pipeline, we're seeing an expansion of investigator-sponsored trials of Jakafi in various liquid and solid tumors, in addition to your own pancreatic trial. Rich or Paul can you speak to, with respect to the pancreatic trial you have an overall survival end point. So obviously you think that this has a direct anti-tumor effect. Can you speak to the mechanism around why we should seen anti-tumor effect with JAK inhibition, and if you actually in the end don't get an anti-tumor effect, if you did see an effect on sort of supportive care type of end points, would that be sufficient for taking it forward in solid or liquid tumors?

Matt, this is Rich. So, the rationale for the anti-tumor effect in pancreatic cancer relates to the basic mechanism whereby which STAT3 phosphorylation for example is reduced, because if you inhibit signaling through JAKs you are going to reduce STAT3 phosphorylation, and there are good animal models in pancreatic cancer showing that that is a key mechanism. Now most pancreatic cancers have other key mutations, but somehow in ways that have not yet been defined; these work in synergy such that by inhibiting STAT3 phosphorylation you get an anti-tumor effect, and that's been demonstrated both in cell cultures as well as in xenograft models.

Now the other aspect that you are talking is whether this will prolong survival as a result of improvement in the metabolic status, so called treatment of cancer cachexia. We think both mechanisms may be at play here. If we can increase survival in a solid tumor like pancreatic cancer, I don't think it's critical why that happens as long as you are increasing survival. And pancreatic cancer is kind of our model, solid tumor disease here. But this same logic can be applied to a number of other solid tumors, including potentially breast cancer, non-small cell lung cancer, and potentially others as well.

So, have you given thought to, in the case that you didn't show a frank overall survival benefit, but you did see improvement in various symptoms, symptomology, would that be sufficient to continue development?

Well, possibly. We haven't really considered that per se. I mean, there's a possibility that you have survival trends, and the studies which is the pilot sized studies, just too small to actually prove it in which case that would be something. But remember that we really set the precedent here in oncology with development of drugs related to symptomatic improvement as we saw in myelofibrosis in being the first approval based on a patient reported outcome. And the oncology division at FDA is very amenable to these types of approaches in the situation where you're making a profound impact. It can't be a trivial change in the symptomatology but when you have a profound impact as we did in myelofibrosis, that is an option. But whether that would be where we would then spend our money and resources remains to be seen when we actually see the data sometime in the second half of this year.

Perfect. Thanks very much and congrats in the quarter.

Boris Peaker, Oppenheimer.

And also I want to add my congratulations to the excellent results. Now, just a general question for Jim. Could you update us on the progress of advancing Jakafi into less advanced patients, particularly in the community setting? What are the kind of feedbacks there that you're getting?

Yes, Boris, it is mixed, and I want to be straight with you. I think use in intermediate one is probably still the exception rather than the rule. But we are seeing some use in less obvious, less severe patients, and we think that bodes very well for the long term. Right now, though, we're seeing still substantial opportunity in the high-risk patients. So our primary focus right now is to engineer successful trial in the high-risk patients and earn the right to go back in and ask for less severe patients. And we're confident that we're going to be able to do that over time.

I see, and so in your 2013 guidance, I guess what fraction of the growth do you anticipate to come, from expanding to new patients and less advanced patients versus maybe just change in duration of treatment of existing patients?

Sure. Again, I think the guidance is our best quantitative description of what's going to happen next year, but qualitatively, the two key drivers in the forecast are new patient starts and length of treatment. And we do assume a modest, realistic, achievable increase in persistence. We're also assuming that we will see a very slight slowdown in a number of new patient starts month over month, and that reflects the fact that it becomes more difficult to get the less severe patients on treatment. But our forecast does assume that we will be able to penetrate into the moderately severe patient population and maintain a robust supply of new patients.

And the new patient starts that you just mentioned potentially slowing down a bit, do you think that the ASH data would really help you to kind of push the accelerator further on these patients? And if so, how long based on your estimates do you think it would take to disseminate this ASH data to the community setting?

Sure. If we're able to maintain the same rate of new patient starts that would be an upside to our forecast. And I do think that it is a plausible scenario that the overall survival data from ASH could enable us to do that. Now, the local ASH meetings, the best of ASH, and the ASH update to take place in the academic medical centers, those have just started, just wrapped up.

And generally, we're very pleased with the awareness level of the ASH new data. Some evidence of that is seen in the number of inquiries that our medical department is receiving regarding subjects like overall survival and subjects like dose titration. So clearly there is an awareness of the data, and there is an interest on the part of physicians to incorporate it into their practice. So we're encouraged by what we're seeing from ASH today.

I'd just also add that our intent is to publish in the peer-reviewed journal the data from ASH, and once that has happened, those papers can be handed out to physicians under current guidelines.

Great, thank you for that clarification, and for taking my question.

Cory Kasimov, JPMorgan.

It's actually Matt Lowe in for Cory today. Just a couple of questions. First one is, are there any specific strategies you're using to get the dosing message out there? And then on the survival message, have you noticed a change or a more receptive physician audience since ASH? Thanks.

Part one, we were certainly using Scientific Exchange as the primary channel for communicating dose information. Certainly our representatives are reinforcing information that's in the current product label, and to the extent the information is not in the label, that is being communicated via Medical Exchange, CME, et cetera.

Regarding the response to the overall survival data, I would say absolutely. I think the consistency of the data in COMFORT-I, in COMFORT-II is building confidence on the part of physicians that the product is working to treat the underlying disease and providing a profound benefit to patients above and beyond symptoms.

Okay, thank you.

Rachel McMinn, Bank of America Merrill Lynch.

A couple of questions. One, I'm hoping you can help us understand what the hurdle is for the futility analysis for Jakafi in the pancreatic cancer study. And then I also just wanted to get a sense in terms of sequential trends, I know you're not giving quarterly guidance, but 1Q tends to be seasonally weak across the board for oncology drugs from insurance based issues. And I'm just wondering if you expect a similar trend for Jakafi next quarter?

Rich?

On the futility, we're already passed that, the study was not stopped for futility. That could potentially have happened if the conditional power was less than 30%, and that was not the case, and that's basically all we know at this point in time. The study remains blinded.

And just a follow-up to that Rich. Is the expectation around a six month survival for this population?

Well, so the historical data in this patient population is about three to four months survival, these are second line patients. It is not clear whether or not the historical data will match what the control -- what the survival is in the control arm of this study as each individual study can enroll slightly different patient populations, so the important thing would be comparing treatment with Jakafi to those who were treated with placebo with everybody getting capecitabine. So it's really about the hazard ratio, how much longer they live relatively then absolute, but we'll just have to wait and see what those numbers look like.

Thank you.

And Rachel, regarding the seasonality, you're exactly right. Particularly with products that are on -- exposed to patients resetting their deductibles, donut holes, et cetera. So we had tempered our expectations for January. And I'm glad to report that we're very encouraged by what we saw in January, and we're confident that we'll be here when we give you the first-quarter results being able to say that our results are consistent. So we're very pleased with the way we came through January.

Okay. Alright, great. Thank you.

Eric Schmidt, Cowen and Company.

Jim you keep pointing toward improved persistence for the strong Q4 results. Can you provide us with any metrics? Are you now able to talk about maybe specifically the discontinuation rate or the average duration of therapy?

Eric, we're reluctant to do that because unfortunately on a short period of time there's still not a lot of noise in the system, and unfortunately that noise is only going to increase as we go into January, because you have patients who will be changing their specialty pharmacies, because their insurance plans change. As a result, we think that the single best indicator right now to point to is looking at the dose mix. And I think when we have more time, when we have a greater period of time and more stable data and the ability to separate signal from noise a little better, I think then we'll be more willing to talk about persistence rates in more specific terms.

Okay, fair enough. But a couple questions for Dave if I could. First on the ex-US Jakavi sales, are you recording your royalties concurrently with Novartis? In other words I think Novartis reported $21 million fourth-quarter Jakavi sales, so the $3.7 million in royalties is essentially 18% of that figure?

Yes, that's correct, Eric. We will do that concurrently now and in the future.

And then for the 2013 COGS guidance, you alluded to a 2% figure. Is that inclusive of any actual cost of goods or are you still going through previous expense product in 2013?

Yes, our API is still the previously expensed product, but we do have recurring cost of goods sold, things like for fill and finish of the product, warehousing, shipping costs, so there is a component of our COGS that is manufactured base.

So most of the 2% sounds like the reverse royalty?

We're not going to get that granular, Eric, in terms of what that breakdown is.

Thank you.

Ian Somaiya, Piper Jaffray.

This is actually Do Kim in for Ian. I was hoping you could maybe talk about what you know about Novartis's initial success with Jakavi in Europe and what Novartis is doing to keep the levels of dropouts low and how that compares to your experience in the US?

And a couple of questions on the pipeline. How should we think about the three Phase II trials for the JAK1 inhibitor? And about the future direction of that program in terms of oncology versus inflammatory? And also whether if the pancreatic Phase II trial for Jakafi could possibly be registrational enabling? Thank you.

Sure. I'll take the Novartis Jakavi. Generally as a principal we rely on our partner to describe their own performance, but Rich and I happen to be up in New Jersey for the day yesterday and we're also aware what they said publicly. So as indicated previously they sold $21 million in the fourth quarter, they're approved in more than 30 countries, they've launched in Canada, Germany, Austria, UK, Denmark, Norway. They had over 2,900 patients in their early access program, and so they are very encouraged by their early performance at launch.

In terms of dose titration and length of therapy, in Europe patients, particularly with rare diseases tend to be referred more to tertiary care centers than in the US. So they're very confident that the ability of specialists who treat a greater volume of MF patients to again be more facile with the does and more diligent on the titration will allow them to minimize premature discontinuation.

So with respect to the JAK1 program that we have, we have a stable of interesting compounds that are selective for JAK1, 39110 is the first of those. We're looking in myelofibrosis and in two inflammatory conditions at the efficacy and tolerability of 39110, and I think we're planning to begin to see that data in the second half of this year. And that data will guide us as to where to go from there, and which compounds beyond 39110 we might or might not want to add to the clinical mix of these JAK1 selected compounds that we have. I'm going to ask Rich to comment on the third question that you asked, and that had to do with the registerability of the blinded Phase II overall survival pancreatic cancer study.

Yes. So this study is a randomized study with about 60 to 65 per arm, so the results would have to be -- but it is based on survival. So I think you'd have to have a very clear survival benefit for regulatory authorities to consider giving an approval or even accepting for filing based on this one study, but if the results were very, very clear I think it would be difficult for them not to consider making something like this available through labeling, considering that there is very limited treatment options here, that it's a highly fatal, rapidly fatal disease, and if you can improve survival with quality of life there, it has to be a possibility. But until we see the data it's really hard to say.

Great. Thank you, that was very helpful.

Salveen Richter, Canaccord Genuity.

Last quarter you'd mentioned that 30% of target doctors had written a script, just wondering if you have an update there. And then also how are you going about restarting discontinued patients?

Yes, the figure we quoted was for the end of 2012, so we'll give you an update on how we're doing in the first quarter of '13 with our first-quarter results. But that is accurate; we penetrated about one-third of our target audience of 6,500 physicians. And in terms of discontinuation, we're basically encouraging physicians that if they've identified a patient who they felt would derive benefit from Jakafi, and that patient was discontinued particularly because of cytopenias, and our research indicates that two-thirds of discontinuations are due to cytopenias. We are seeing thrombocytopenia as a cause for discontinuation decline and so we're very focused on anemia; we're encouraging those physician to restart those patients at a lower dose, and we're seeing some success with that.

Great, and then Dave just a question for you, just wanted to get a sense of when you may record the $60 million in milestones and when you expect reimbursement in those specific EU countries?

Yes. I think probably my midyear.

Okay. Great. Thank you.

Brian Abrahams, Wells Fargo.

Congrats on another great quarter. Question for Jim, I was wondering if you could talk about the role of patient advocacy groups, particularly since the updated Jakafi survival data have been presented. Just wondering if you anticipate that will have a growing -- any sort of growing impact on use patterns. And then as you think about the long-term potential competitive dynamics, how relevant is it having versus not having survival benefits on the label? Does it really matter given the physician awareness of the evolving data? Thanks.

We're spending a lot of time working with patient advocacy groups and we think it's a great investment, primarily for patients. And what we're seeing is that this has been a condition of watch and wait for physician patients for a long time, and that an educated patient really in many cases is the catalyst for -- as a treatment trigger for Jakafi. So certainly that is a very productive use of our time to work closely with the groups. And overall survival clearly is a catalyst, and what we're seeing is that when patients ask for Jakafi or about Jakafi, in the vast majority of cases physicians will prescribe it. So that is an important lever and we remain very focused on it.

In terms of overall survival, relative to future competitors, yes absolutely, I think if you look at the history of oncology products, where you have an incumbent product with overall survival data, I think history indicates it's very, very difficult for follow-up competitors to displace that product. And we're going to obviously be doing everything we can to keep that pattern intact when it comes to Jakafi.

Thanks very much.

Thomas Wei, Jefferies & Co.

I wanted to ask about the guidance it seems very low to me relative to the trends that you are seeing in the fourth quarter, and if I incorporated all of this math quickly on the fly as you were talking about it on the call, I don't have a slight slowdown in new patient starts; I would actually need to drop my new patient start rate by somewhere between 20% and 35% immediately relative to the fourth-quarter levels. So I wanted to try to understand is that the right way of thinking about it? And is that because you are actually starting to already see that type of slowdown so far during the first quarter of the year?

Yes, a couple of things, Thomas. Number one, we're not seeing a slowdown in new patient starts, we're seeing a consistent rate of new patient starts in the fourth quarter. And as I said previously, we're encouraged by what we've seen in January, so I think that's point one. Point two, we probably don't want to get into doing math over the phone here. But what I can assure you is that in order to hit the low end of our guidance, we're looking at unit growth, dispensed bottles growing consistently, quarter over quarter at a high-single digit rate; at the high end of guidance we're looking at low-double digit growth in units quarter over quarter, and then you have to layer on the impact of price, and as you remember we took a 9% price increase on November 16.

So that's really how you range -- how we are ranging our unit growth. If you take a look at a fairly linear phasing, let's take the $43.3 million in the fourth quarter, you have to adjust for a price benefit there, phase that growth over 2013, you're looking at between a 40% and 50% fourth-quarter '13 over fourth-quarter '12 growth rate in terms of net revenues. So we think that is ambitious; we also think it's realistic and it's achievable.

And did I hear you correctly in answer to somebody else's question, did you say that the fourth quarter new patient starts were similar to third quarter new patient starts in that all of the increase in sales on a quarter over quarter basis was related to an improvement in persistence and the discontinuation rate?

What I said is overall, the rate of new patient adds has been consistent, and if you take a look at the fourth quarter, in particular new patient starts were consistent with our forecast that we use to generate the guidance of $130 million to $135 million, and the favorability we had coming in at $136 million was totally attributable to an increase in persistence.

And can you say was there something unusual about the timing of new patient starts in the fourth quarter, was it very front end loaded, and not very much seen towards the end of the quarter? You're saying January actually looks pretty good, but did it follow that sort of pattern during the quarter, was it relatively consistent over the quarter?

I would say relatively consistent, Thomas.

Okay. I guess I'm still struggling a little bit, but because if you had 35% in the third quarter and then the underlying rate of 42% in the fourth quarter and you're seeing kind of a consistent add over the quarter, then that 42% is naturally becoming something much higher, and then you layer on the price increase and we -- I can follow-up with you off-line on some of the math, but maybe just my last question here --

I think that the math we communicated really is the math that we're going to communicate, Thomas. Again, we're giving a very tight guidance range of $210 million to $225 million, and we're going to rely on you to complete your models, looking at how you get there through an increase in persistence and a modulation in new patient starts.

Okay. That's helpful.

I don't think we have a whole lot more math to add than that.

Thank you.

Ying Huang, Barclays.

First of all, this may be a question for Jim. So I noticed that the SG&A is going up to $100 million to $110 million this year due to additional programs. Can you give us a little clarity on what additional programs you're planning for promotion for Jakafi here? And then secondly I noticed that there will be a modified label in second quarter. Can you give us a preview of what might be appearing on the FDA approved label in the second quarter? And then, lastly, obviously you have this [myelo] compound in Phase II. Can you clarify what your relationship with Lilly is, because obviously Lilly also has their own JAK inhibitor in those Phase II trial as well. Is there any conflict of interest or is there anything that you wrote in the clause of the contract? Thank you.

On the promotional spend there's two areas of focus, both professional education, one is disease education, educating physicians on the nature of myelofibrosis, the disease course over time. And number two is on the need for dose titration. So it's our increased spend is largely focused on professional medical education.

And then Jim I'd also add that in SG&A our foundation payments to assist Medicare patients are in there as well. And as our sales increase, that number goes higher. Yes.

So with respect to Lilly I think it's our understanding that the compound that they have in development is directed to myelofibrosis, that they had a JAK1 that they thought was selective for V617F JAK, right?

So I'm not sure that I understood the question the same way that you did, but on that topic, that program had a lot of renal toxicity.

Right, and I think they're not developing it anymore.

I don't know what they're doing; we have a strict firewall between what they're doing in myelofibrosis.

Right. That's our guess. And but with respect to the details of the contract we are not able to elucidate those for you; we'd just say that when we say that these compounds are inside proprietary compounds, that's what we mean.

And then on the label?

Yes. So, no, what this supplemental NDA is about is dosing for patients who start with platelet counts less than 100,000, and as we've talked about in the past we think the appropriate starting dose for those patients is 5 milligrams twice daily, that most of those patients can get up to 10 milligrams twice daily safely, and when they do so, they see efficacies similar to what we have seen in the COMFORT trials. So the proposed labeling is around that, but until we actually get feedback from FDA, I'm not going to get specific about exactly what was proposed until we see what we end up with.

And Rich, on the data present at ASH, would that go into the label or is that something you proposed?

The data that was presented at ASH is not in this submission that was made last August. It's specifically on patients who start with platelet counts less than 100,000, the data was presented at ASH this year. The data that was presented on COMFORT studies this year was largely on patients who start with greater than 100,000. There was one presentation given on the low platelet study and that's correct.

But in terms of the data on the COMFORT studies that was presented at ASH showing both a survival benefit for the first time in COMFORT-II whereas we've had one for awhile in COMFORT-I, and the data on dose titration in patients who start with greater than 100,000 platelet counts, that is likely to be the basis of a separate sNDA that we would file this year, but wouldn't have changed labeling on that within 2013.

Great. Thank you very much.

David Friedman, Morgan Stanley.

Can you just comment on whether there was any inventory changes in advance of the November price increase? And then also, if you could just discuss any details about how you're thinking about price this year and next year?

David, there was a very modest build and probably we had some wholesalers anticipate the anniversary of our launch, and that was corrected certainly within the next few weeks. So as I said, we ended with -- when we're talking about a 4% change off of essentially three weeks of inventory, that's really a de minimis impact on the business. And in terms of future price increases, no, we will not be commenting on those.

Thank you.

Joshua Schimmer, Lazard Capital Markets.

Paul, I guess you separated the hem onc indications from the inflam indications for Jakafi versus baricitinib, do you plan a similar two drug strategy with JAK1 inhibitors? Also at what stage would you plan on partnering inflam indications? And then last, do you believe that PV on a global basis can be priced on par to the MF indication? And if not, is there an opportunity to differential price PV versus MF in some geographies based just on separate molecules? Thanks.

Josh, on the strategy for JAK1 -- it's obviously we talk about all the possibilities that you have just raised. We need to see the results from these early Phase II trials as we try to optimize our strategy going forward. Each of the compounds that are coming along a little bit behind 39110, they all have slightly different characteristics, and in an ideal world for clean labels, yes, you would probably would like to have a compound inflam that was for inflam and a compound or maybe more than one for oncology. It's way too early to speculate on if and when we would partner the inflam indications, But we will keep you updated as we go along. On the pricing for PV I'm going to ask Jim to comment on that.

Yes. I think it's premature to be talking about PV pricing at this point; we're just getting into our prelaunch planning. So preliminarily, we're excited by the opportunity; we think we have a very strong value proposition. The interesting thing here is the side effect in MF becomes the treatment benefit in PV in terms of reducing counts. We're excited by the epidemiology. There our a lot of patients who will benefit from Jakafi in PV. And also, I think the under appreciated dividend here is the length of treatment. These patients will be on treatment for an extended period of time. So, we see a very exciting opportunity for the brand in PV.

Okay. Thanks.

Skip Klein, Gauss Capital Advisors.

Happy Valentine's Day. It turns out that my mom plays mahjong with the Maryland Director of the Paul Friedman fan club because you grew up in Maryland, and she asked me a couple questions last night and I gave her some answers, and I wanted to run it by you guys. In terms of patient metrics, she was saying well they're adding about -- what is the gross in net adds, and I said I think gross are adding maybe 200 to 220 patients a month, and net maybe 90 to 100 patients a month.

And then she asked me well, are they -- I hear that you told me that they are lowering the dose, and she said do they have any ability to split the pill or the capsule? And the other question that she sort of had, and I said I thought the price is the same regardless of the dose, so could you confirm all that? Or tell me what I should tell my mom?

Well let me -- I don't think we want to comment on new patient adds in general. But I'll tell you what I will say, your mom is not a bad forecaster in terms of the new patient adds. On the net I don't want to make any comment at all on that. In terms of splitting the tablet, we really don't see that as a feasible option. We don't think that's in the interest of patients to get into tablet splitting. But --

Is it priced the same across all dosages?

It's flat pricing.

Absolutely.

Okay. And then the final thing that she sort of was discussing is tell me about JAK1 versus mixed JAK1, JAK2; what are they going to see from selective JAK1s that they don't get from JAK1, JAK2, and the only thing I could tell her is I thought the JAK1 inhibitors sort of knocked down the cyto counts on the inflammation, but I wasn't very elegant on that standpoint so I thought maybe Paul or Doctor Levy could help there?

Sure, it's Rich. Things are theoretical until we see clinical data, but the idea is that erythropoietin, thrombopoietin signal through JAK2 exclusively, and that if you have a JAK inhibited doesn't signal through JAK2, you might see less anemia and thrombocytopenia while maintaining the benefits in terms of the inflammatory milia that exist. That difference could have impact in a disease like myelofibrosis where potentially you could see less anemia and thrombocytopenia. But in diseases like rheumatoid arthritis and psoriasis, which are the other two that we are studying now, we fully acknowledge that there are JAK1, JAK2 inhibitors such as baricitinib that have great efficacy without any significant anemia or thrombocytopenia. So it's an interesting field to continue to look at. The other aspect is in oncology where you have drugs that are being used that already are reducing blood counts that a JAK1 inhibitor may be more easily combinable with some of those drugs because they wouldn't contribute to the cytopenias.

Great. Thanks a lot.

Bret Holley, Guggenheim Partners.

I was wondering what your current estimate of the percent of addressable high to intermediate risk MF patients who are in the low platelet count group, and what is the current behavior with these patients? Has the data gotten out there from ASH, and that you're seeing more of an uptake in the segment of the MF group?

I can't give you a quantitative estimate because it has a huge range on it, Bret, in terms of percent of high risk intermediate to that have low platelets, but what I can tell you is that the awareness of the five BID data is very high and we are seeing thrombocytopenia as a cause for discontinuation on the decline. So we think that's an issue that we've really got our hands around, and we think we're going to manage that very effectively.

And just a quick follow-up. Could you give an updated timeline on actual results for PV from RESPONSE and RELIEF now that we are into 2013?

Yes. Results will come out in the first half of '14.

Okay. Thank you.

Thank you. There our no further questions at this time. I will turn the floor back to Management for closing comments.

All right. Thank you all for your attention this morning. We look forward to making good progress and talking to you again in about three months. Thank you and good morning.

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