Incyte - Q3 2023

Transcript

Operator (participant)

Hello, and welcome to the Incyte Third Quarter Earnings Conference Call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question-and-answer session will follow the formal presentation. You may place into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Ben Strain, Associate Vice President, Investor Relations. Please go ahead.

Ben Strain (Associate VP and Head of Investor Relations)

Thank you, Kevin. Good morning, and welcome to Incyte's Third Quarter 2023 Earnings Conference Call. Before we begin, I encourage everyone to go to the investors section of our website to find the press release, related financial tables, and slides that follow the discussion related to today's call. On today's call, I'm joined by Hervé, Pablo, Barry, Steven, Christiana, who will deliver our prepared remarks and will participate in the Q&A. I would like to point out that we'll be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. I will now hand the call over to Hervé.

Hervé Hoppenot (CEO and Chairman)

Thank you, Ben, and good morning, everyone. In the third quarter, we continued to deliver double-digit revenue growth, important successes in pricing and reimbursement, and continued progress of the pipeline. Product and royalty revenues were $914 million in the quarter, with an 11% growth year-over-year, driven by Jakafi and Opzelura. Jakafi net sales in the quarter were impacted by inventory variation, which Christiana will detail in her prepared remark. As you see, in the first nine months, Jakafi growth continues at a rate of around 8% this year. The growth trajectory of Opzelura continued in the third quarter with net product revenue of $92 million, driven by both new patients and refills in AD and vitiligo.

In the first nine months of 2023, Opzelura revenues contributed $229 million, and we expect Opzelura to continue to be a key contributor to the growth of Incyte in the next years. On slide six, we made important progress this quarter on two fronts related to pricing and access. First, as the IRA is implemented, we secured small biotech exception status for ruxolitinib. This has two impacts on Jakafi pricing and gross to net in the coming years. One, we expect that Jakafi will be exempt from negotiation until 2029, making it de facto neutral to our initial business plan. And two, as you can see, we expect to benefit from the specified small manufacturer phase-in schedule for Part D catastrophic coverage versus the standard benefit, which will have a meaningful impact in the years 2025 to 2031.

For Opzelura coverage in the US, starting in 2024, Opzelura will be listed as a preferred brand on the CVS Caremark and Aetna formularies, which will benefit roughly 30 million commercial lives. This achievement will move Opzelura to preferred brand from non-preferred brand tier and will result in increased access by reducing both step edit requirements, patients copay for many patients, while maintaining Opzelura's favorable utilization management criteria. Turning to Slide seven. We continue to make progress in our clinical development efforts across our portfolio. Just last week, we obtained new top-line results from the phase II randomized study assessing the efficacy and safety of povorcitinib, our oral JAK1 inhibitor, in patients with prurigo nodularis. The study met its primary endpoint across all three treatment dose groups, and povorcitinib was generally well tolerated.

There are approximately 100,000 treated patients in the U.S. with prurigo nodularis, with limited treatment options, and we are excited to move this program forward based on the phase II data. Steven will provide additional details. During the quarter, we had a significant presence at EADV, where we presented the full Opzelura atopic dermatitis data in the pediatric population and positive long-term expansion data in vitiligo. We also shared new positive data from the phase IIb clinical trial of povorcitinib in adults with extensive vitiligo.

By the end of the year, we anticipate providing additional data from other key programs, including an update on our oral PD-L1 program, additional combination data of ruxolitinib plus IL-2 and PD-1, and full disclosure of a novel preclinical program targeting the JAK2 V617F mutation, which has the potential to be a disease-modifying therapy for many patients with myeloproliferative neoplasms. I will now turn the call over to Barry, who will discuss our commercial performance in more details.

Barry Flannelly (EVP and General Manager, North America)

Thank you, Hervé, and good morning, everyone. Starting with Jakafi on Slide nine. Jakafi continued to experience increasing patient demand during the quarter as we delivered 2023 year-to-date net sales of $1.9 billion, growing 8% year-over-year, while total patients for the first nine months has also grown 8% year-over-year across all indications. The quarter-over-quarter impact in net sales is primarily attributable to fluctuations in channel inventory. Recall that we reported exiting Q2 at the high end of our normal inventory range, and inventory drew down modestly in Q3.

... We continue to see strong growth in underlying demand and now are tightening our full year 2023 guidance to a new range of $2.59 billion-$2.62 billion. As we look to the future for Jakafi, PV will be a key growth driver, particularly considering that a significant portion of patients are not receiving adequate benefit with hydroxyurea. Now, for the first time, we have data that clearly demonstrates the thrombosis-free survival benefit that can be achieved with Jakafi. The data shows that patients who are not being adequately controlled and are switched to Jakafi experience a 44% reduction in the risk of major thrombosis. We are already hearing from thought leaders that this data is game-changing in PV and reinforces the importance of early intervention for these patients.

We believe this important data will help drive earlier use, allowing us to further penetrate the PV market. Turning to Opzelura on slide 11. The launch continues to be strong and is gaining positive momentum with both physicians and patients as we establish Opzelura as one of the best recent dermatology launches. Looking at the first two years post FDA approval, Opzelura outperforms all other dermatology products on a launch-aligned basis. The rapid adoption of Opzelura is driven by its compelling product profile and its ability to address significant unmet need in both atopic dermatitis and vitiligo. Opzelura net product revenues in the quarter were $92 million, up 141% when compared to the same quarter last year.

U.S. patient demand increased during the quarter, with total prescriptions growing 72% year-over-year, and refills growing by 19% versus the prior quarter, with over 9,100 dermatologists now having prescribed Opzelura. The weekly pre-prescription trend, as shown on the right, demonstrates the continued growth of Opzelura, which is coming from both atopic dermatitis and vitiligo. In AD, growth was primarily due to new patient flow, driven by Opzelura's efficacy and impact on inflammation and itch. In vitiligo, where Opzelura is the only approved treatment for repigmentation, growth was driven largely by refills and our educational and awareness initiatives. We remain very optimistic about the long-term potential of Opzelura as we continue to see the strong uptake and positive momentum. We are also working to drive new patient growth and adherence through ongoing initiatives.

During the quarter, we kicked off a new marketing campaign called Moments of Clarity, featuring Mandy Moore. The goal of this campaign is intended to bring to life the stories of real people struggling with eczema, who found relief by talking to their dermatologist, and to build broad awareness of Opzelura as a non-steroidal topical option among mild to moderate AD patients. The campaign secured several high-profile media placements, including coverage with top-tier outlets like The Today Show and People Magazine. We are also continuing to roll out DTC initiatives in vitiligo, which is building awareness, driving demand, and activating patients to discuss treatment options with their dermatologist. Turning to slide 14, we continue to make advancements with our payer coverage for Opzelura.

In AD, payer adoption continues to improve with regional plans, and as of today, we have roughly 84% commercial coverage for Opzelura and atopic dermatitis, covering over 127 million lives. In vitiligo, we have made significant progress since the launch and have improved our coverage by roughly 30% throughout 2023. The most recent progress was with Blue Cross Blue Shield Federal Employee Program, which accounts for over 5.5 million lives. Additionally, as Hervé mentioned, Opzelura will be moving from non-preferred to preferred brand tier, effective January 1, 2024, for CVS Caremark and Aetna formularies. With that, I'll turn the call over to Pablo.

Pablo Cagnoni (President and Head of Research and Development)

Thank you, Barry, and good morning, everyone. As you may recall, earlier this year, we made the decision to increase our focus on eight high-potential programs. Consistently with this, our near-term goals for the R&D organization will be to increase the rigor of our decision-making, accelerate the progression of our pipeline, and increase our efficiency to optimize our resource allocation. Before I hand the call over to Steven for an update on some of our later-stage programs, I would like to spend a few minutes highlighting some of our key earlier-stage programs to give a more clear picture of the depth and quality of our pipeline. During the third quarter, our TGF-beta receptor 2 by PD-1 bispecific antibody into the clinic, and the phase I dose escalation study is progressing well.

It has been designed with high selectivity for the PD-1 receptor, combined with TGF-beta receptor 2 inhibition, and it has the potential to enable a synergistic approach to target multiple immunosuppressive pathways across a number of cancers. INCA34460 is a novel, humanized, anti-IL-15 receptor beta monoclonal antibody that's designed to target and deplete autoreactive tissue resident memory T-cells. It has demonstrated efficacy as a treatment for vitiligo in preclinical models and received IND clearance last quarter. We have since initiated the phase I single-dose ascending study. We also dosed the first patient for the phase I study of our novel anti-mutant CALR-targeted monoclonal antibody, with the potential to eradicate the malignant clone in certain patients with myeloproliferative neoplasms and significantly modify disease outcomes. CALR mutations are responsible for disease development in approximately 25%-35% of patients with MF and ET.

We're disclosing today for the first time, a program targeting the JAK2 V617F mutation, the most common somatic mutation in myeloproliferative neoplasms. The JAK2 V617F mutation is located in the JH2 domain of the JAK2 receptor and is present in 55%, 60%, and 95% of patients with MF, ET, and PV, respectively. Unlike ruxolitinib, which inhibits both wild type and V617F mutation-positive cells, INCB160058 selectively binds to the JAK2 JH2 site, disrupting the V617F-induced conformation, and thus allowing selective inhibition of mutant activity in the JAK2 receptor while sparing wild type. We expect to file the IND by year-end 2023 and enter into the clinic in 2024. Together with our anti-mutant CALR program, these two potentially disease-modifying programs represent a fundamentally new approach to addressing MF, ET, and PV, and solidify our leadership in MPNs.

With that, I would like to pass the call to Steven, who will further highlight some of our key achievements this quarter with our more advanced programs. Steven?

Steven Stein (EVP and Chief Medical Officer)

Thank you, Pablo. Starting on slide 19, as Hervé mentioned, we obtained the top-line results from the phase II randomized, double-blind, placebo-controlled dose-ranging study, assessing the efficacy and safety of povorcitinib in patients with prurigo nodularis. The study met the primary endpoint for all povorcitinib doses studied of 15, 45, and 75 milligrams, and at week 16, 36.1%, 44.4%, and 54.1% of patients, respectively, achieved the primary endpoint versus an 8.1% rate for patients on placebo. The primary endpoint was designed to assess the proportion of patients achieving a greater than or equal to four point improvement in itch at week 16. Povorcitinib was generally well-tolerated across all doses, and the safety analyses were consistent with previously presented data, with no new reported treatment-emergent adverse events.

We plan on presenting the full data set at an upcoming medical conference in the first half of 2024. As a result of these very encouraging findings, plans are underway to initiate a phase III study in 2024. We had a significant presence at the European Academy of Dermatology and Venereology Congress earlier this month, which highlighted our commitment to the atopic dermatitis and vitiligo communities. In a late-breaking oral presentation, we presented positive 52-week data from a phase IIb clinical trial evaluating the safety and efficacy of povorcitinib in adult patients with extensive non-segmental vitiligo. These results showed that treatment with oral povorcitinib was associated with substantial total body and facial repigmentation across all treatment groups at week 52 and was well-tolerated at all doses throughout the study. During the 24-week post-treatment period, total body and facial repigmentation was also maintained, which suggests durability of response following treatment discontinuation.

These data further reinforce the efficacy and safety profile of povorcitinib as an oral treatment for patients with extensive non-segmental vitiligo, and we plan to initiate the phase III study by the end of this calendar year. Povorcitinib has already demonstrated outstanding efficacy in the phase II program in hidradenitis suppurativa. As a reminder, 52%-56% of patients treated with povorcitinib achieved a HiSCR50 at week 16, with responses improving to 59%-67% at week 52. Additionally, HiSCR100 response, which is complete resolution of all manifestations of the disease, was reported at week 52 in up to 29% of patients. The two phase III studies, STOP-HS1 and STOP-HS2, are enrolling very well, and this reflects the strong phase II data presented earlier this year. We continue to expand the povorcitinib program focused on the science while leveraging our extensive dermatology capabilities.

We look forward to advancing the development of povorcitinib in areas of unmet need, where it is currently being evaluated in two phase III studies in HS and moving into a phase III program for vitiligo and prurigo nodularis. Work continues in the phase II proof-of-concept studies in asthma and chronic spontaneous urticaria. Moving to ruxolitinib cream on slide 23. Also presented at the EADV were the expanded results from the pivotal phase III TRuE-AD3 study, evaluating the safety and efficacy of ruxolitinib cream in children two to 12 years old with atopic dermatitis. These data showed significantly more patients treated with ruxolitinib cream, 0.75% and 1.5%, achieved Investigator's Global Assessment treatment success than patients treated with placebo. Treatment with ruxolitinib cream over eight weeks under maximum use conditions was also well-tolerated in children....

Expert feedback on the data has been consistently positive, namely that ruxolitinib cream could be advantageous to the currently available non-steroidal topical options and an important option before resorting to currently available injectables. We are excited about the potential relief ruxolitinib cream can bring to the over two million pediatric atopic dermatitis patients in the United States. As a late-breaking oral presentation at EADV, new results from the pooled analysis of the long-term extension data from the pivotal phase III TRuE-V program were presented. The long-term study extension evaluated Opzelura in patients 12 years and older with non-segmental vitiligo, who previously experienced limited or no response to treatment at week 24. The data demonstrated that prolonged treatment with ruxolitinib cream led to increased facial and total body repigmentation in those patients who were initial non-responders.

Approximately 70% of patients saw improvements in facial VASI and total VASI at week 52, which increased to 85% by week 104. Throughout the long-term extension, Opzelura continued to be well-tolerated, with no serious treatment-related adverse events. This data highlights the importance of prolonged treatment in patients with vitiligo, even when limited or no repigmentation is achieved in the first six months of treatment. On slide 25, we continue to advance Opzelura development beyond AD and vitiligo and into other indications where it has the potential to provide significant value as either the first approved therapy or first approved topical therapy for patients living with these dermatologic conditions.

We currently have three phase II studies, which have recently completed enrollment in lichen planus, lichen sclerosus, and mild to moderate HS, and two additional phase III trials evaluating Opzelura in prurigo nodularis, which are all currently enrolling patients. Finally, on slide 26, we have a number of upcoming data readouts and other exciting milestones expected, and we look forward to sharing additional details throughout the remainder of this year. With that, I would like to turn the call over to Christiana for the financial update.

Christiana Stamoulis (EVP and CFO)

Thank you, Steven, and good morning, everyone. Q3 total product revenues were $783 million, representing a 10% year-over-year increase. In the first nine months of 2023, total product revenues were $2.3 billion, representing a 16% year-over-year increase. Total royalty revenues, which are primarily comprised of royalties from Novartis for Jakafi and Tabrecta and royalties from Lilly for Olumiant, were $131 million in the third quarter and $374 million in the first nine months of the year. Turning to Jakafi. Jakafi net product revenues were $636 million for the third quarter and $1.9 billion in the first nine months of 2023. In the first nine months of the year, Jakafi net sales grew 8% compared to the same period last year.

While Jakafi demand net sales have continued to steadily increase quarter-over-quarter, in the first two quarters of 2023, we saw more notable fluctuations in channel inventory levels, which resulted in some variability in the quarterly reported net sales. As we had previously shared, at the end of Q1, channel inventory levels fell below the low end of the normal range, recovering in Q2 and ending the second quarter towards the high end of the normal range. At the end of Q3, channel inventory levels returned to the midpoint of the normal range. In the third quarter of 2023, the decrease in inventory had a $14 million negative impact on reported net sales. Turning now to Opzelura. Net product revenues for the third quarter were $92 million, representing a 141% increase year-over-year, driven by increased patient demand and expanded coverage.

In the first nine months of the year, total Opzelura net product revenues were $229 million. Moving on to slide 32 and our operating expenses on a GAAP basis. Total R&D expenses were $376 million for the third quarter, representing a 2% year-over-year decrease, driven primarily by the decrease in one-time collaboration-related expenses, partially offset by continued investment in our late-stage development assets and timing of certain expenses. Total SG&A expenses were $268 million for the third quarter, representing a 1% year-over-year growth. Moving on to our guidance for 2023, we are tightening our guidance range for Jakafi to a new range of $2.59 billion-$2.62 billion. We are reaffirming our other hematology/oncology revenue, COGS, R&D, and SG&A guidance for the year. Operator, that concludes our prepared remarks.

Please give your instructions and open the call for Q&A.

Operator (participant)

Certainly. We'll now be conducting a question-and-answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please, while we poll for questions. Our first question today is coming from Salveen Richter from Goldman Sachs. Your line is now live.

Speaker 21

Good morning, this is Anna [Mead] on for Salveen, and thank you for taking our question. First, could you help us understand Opzelura gross to net trends during the quarter and your expectations on the forward? And then just a quick question on the combo data with Jakafi, ALK2, and BET that's expected in 4Q. I guess, in the context of where the once-a-day dosing stands and the overall combination strategy and the positioning of each asset, can you just help us understand your thinking on how this could play out from a life cycle management standpoint? Thank you.

Christiana Stamoulis (EVP and CFO)

Hi, Anna. It's Christiana. I'll take the first part of your question and then turn it to Steven. Regarding the gross to net for Opzelura in Q3, gross to net was 54%, down from 55% in Q2 and 60% in Q1. As we said in our prior call, in last quarter's call, we expect gross to net to continue around that 55% level, and any improvement would very much depend on the evolution of Medicaid.

Steven Stein (EVP and Chief Medical Officer)

Anna, in terms of your second question and the lifecycle management of ruxolitinib in myeloproliferative neoplasms and beyond, including graft-versus-host disease. Just to take the components of your question separately, the once daily dosing, we continue to work with the FDA on a response, and one of the efforts involves modeling that may be a little short in terms of timeline, and one may require some further work. Regardless of the effort we undertake, both will be delivered way before the LOE for ruxolitinib, so that we'll pursue and continue. In terms of ALK2 and BET, both very important combinations, we're showing further monotherapy and combination data at the American Society of Hematology meeting in December, so you'll have to wait for those abstracts and the meeting itself to see the data, but it's more data in terms of monotherapy and combination.

Your question relates to how they may play out. You know, ALK2 is principally addressing hepcidin inhibition and then resulting in hemoglobin improvement. The idea there would be to treat both the anemia from myelofibrosis as well as potentially the drug-induced anemia from Rux, and we'll see how that data evolves. BET is already a mechanism that has demonstrated the ability to shrink spleen, spleen volume reduction, to improve symptoms, and also, through epigenetic means, improve hemoglobins. We've already shown, you know, quite substantial efficacy with our own program. We'll see how other competitive programs play out in the short term. We'll show you data at ASH, and then we'll direct you towards our registration-directed efforts here.

It could be, plays in the first-line setting in combination with Rux, in the suboptimal setting in combination with Rux, and even as monotherapy post-JAK inhibitors, there's substantial efficacy with the BET program. And then just to round out LIMBER, let me remind you, you know, axitilimab had a positive phase III, this year with really excellent data in third-line graft-versus-host disease, and that submission is going in, and we'll progress that through the regulatory cycle. Thanks.

Operator (participant)

Thank you. Next question is coming from Tazeen Ahmad from Bank of America. Your line is now live.

Tazeen Ahmad (Managing Director of Equity Research)

Good morning, and thanks so much for taking my question. Just one for me. I just want to get a sense of how you're thinking about the evolution of the competitive landscape as it relates to Jakafi. There's been a recent new approval for momelotinib for a subset of patients that might be on Jakafi. How are you thinking about marketing Jakafi in relation to this newly approved drug? And do you think that there's any risk of that drug taking market share? Thanks.

Barry Flannelly (EVP and General Manager, North America)

Sure, Tazeen, this is Barry. So as we think about competition in myelofibrosis, you know, there was already two other JAK inhibitors on the market, and neither of those JAK inhibitors have really penetrated, and their approvals have actually been in the first and second line setting, and haven't really moved at all over many quarters now in terms of their market share, or quite frankly, in terms of their net sales. For momelotinib itself, you know, Jakafi was compared directly in SIMPLIFY-1 study to momelotinib, and momelotinib failed in that study. The approval that they received both in the first line and second line setting for patients with anemia. Jakafi is in fact the only drug that really has superior overall survival in myelofibrosis patients, regardless of anemia.

So in other words, patients who have anemia and got Jakafi for myelofibrosis have a survival advantage. So, that strong designation gives us confidence that we'll continue to be the leader in myelofibrosis. Additionally, of course, patients are started, myelofibrosis patients are mostly started on therapy when they have symptoms, and Jakafi clearly is the most effective therapy when it comes to managing symptoms and spleen. And then, momelotinib, just like the other drugs, are in fact much more costly than Jakafi. Momelotinib being $26,900 per month, 60% or so higher than Jakafi. So seems like it was priced for a second-line drug, and we think that's where it'll be mostly used.

... Thank you.

Operator (participant)

As a reminder, that's star one to be placed in the question queue, and we ask you, please ask one question, then return to the queue. Our next question is coming from Brian Abrahams from RBC Capital Markets. Your line is now live.

Leonid Timashev (Biotechnology Analyst)

Hey, thanks. It's Leonid on for Brian, and thanks for taking our question. I just wanted to go back to maybe some of the reimbursement dynamics with Opzelura. You guys mentioned the preferred brand designation from Caremark and Aetna. I guess I'm curious, how do you anticipate that impacting access and ultimately pulling through to utilization? And did you guys have to make any net pricing concessions for that? And I guess related to that, I mean, is this contracting that you're working on with some of the other payers as well? Thanks.

Barry Flannelly (EVP and General Manager, North America)

Sure, Leonid, Barry, again. So, you know, in terms of, Caremark, CVS Caremark in particular, it's very important, in terms of access for the patients. We're trying to make it as easy as possible for dermatologists to prescribe the drug and then for patients to receive it. So, in this particular situation, we're going from, you know, a double step for atopic dermatitis, so patients would have had this to go through topical steroids and, topical calcineurin inhibitors, before they get to, Opzelura, and in vitiligo, they also had, to go through multiple steps. Now, in vitiligo, as it should be, because of the label and the only drug approved for, vitiligo, that repigments the skin for vitiligo, having no steps to go through. So first line therapy is excellent.

Just having to go through one step because most patients will have, in fact, use topical steroids when they have AD, so that makes it much easier. In terms of contracting and concessions, you know, there's always a negotiation, of course, with the PBMs and the payers over rebates and fees and so forth. So, it might cost us a little bit more on the rebate end, but in fact, then the copays generally go down, and most importantly, what we're really trying to achieve is volume. Then I suppose your last question is the negotiations with payers always continues. We don't really have to have any further negotiations, unless we choose to, until 2025 for Opzelura.

But, there's always the chance that we come back and decide to do something slightly different in terms of making access easier for patients. Most of the contracts that we have in place currently, in fact, allow plans to step up and change their step therapy from two to one and so forth.

Operator (participant)

Thank you. Next question today is coming from David Lebowitz from Citi. Your line is now live.

David Lebowitz (Research Analyst)

Thank you very much for taking my question. Would you be able to give us insight on the current, I guess, rate of the number of tubes per patient in AD and D, excuse me, AD and vitiligo, you were expecting, have there been any changes in expectations and where do things stand right now?

Barry Flannelly (EVP and General Manager, North America)

Sure. So in terms of AD, I think we had it on the slide, it's around two. We've been saying that for a while. We expect two tubes per patient for atopic dermatitis on average. Obviously, some patients will get a lot more than that. In vitiligo, we need some more time, really, to evaluate exactly in the real world, how patients will receive Opzelura for vitiligo. So, patients who have, you know, might just apply the drug to the face, for example, or apply it all over their body, it varies. But, we'll continue to track the number of tubes for vitiligo, but obviously, with our data so far, long-term extension data, patients can use it safely for years and continue to get benefits.

So, we'll update you when we have more information as we gather more data, as we have more use in vitiligo.

Operator (participant)

Thank you. Next question is coming from Jessica Fye from JP Morgan. Your line is now live.

Jessica Fye (Equity Research Analyst)

Great, good morning, and thanks for taking my question. Curious, if you'll be in a position to provide Opzelura sales guidance for 2024, and with respect to your bet, what you'll be looking for in the upcoming povorcitinib results?

Christiana Stamoulis (EVP and CFO)

So Jess, I'll take the first part of the question regarding the Opzelura guidance. As we've shared with you in the past, in order to provide guidance, we want to have a few quarters of real-world experience with Opzelura, especially for vitiligo, given that it is a new market, and be able to see how in the real world utilization is, how many tubes on average vitiligo patients use, and also how quickly and at what rate inactive patients can get in to see their physicians and get on therapy. So we are still very early in the launch of vitiligo, and we continue to monitor the progress and want to see a few more quarters before we are in a position to provide guidance.

Steven Stein (EVP and Chief Medical Officer)

Then in terms of your question related to BET inhibition in myelofibrosis, you know, the competitor ongoing first line study, which you allude to, is, you know, what we consider a pretty standard first line study in about 440 patients. The primary endpoint is spleen volume reduction of 35% or greater, and, you know, already communicated, it has to be an and in terms of the secondary endpoint of hitting total symptom score, 50% improvement or above.

... versus the competitor rux in that situation. For our own BET inhibitor, as I said earlier, you know, both monotherapy data, we've already shown spleen reduction, symptom response, and some hemoglobin responses, and then the ongoing combo work showing the same. And, and we'll have to see how, you know, that data plays out versus what the competitor delivers in that first-line study in terms of our registration efforts, and we'll communicate further about that at the ASH meeting coming up in December. Thanks.

Operator (participant)

Thank you. Next question is coming from Marc Frahm, from TD Cowen. Your line is now live.

Marc Frahm (Managing Director and Analyst)

Hi, thanks for taking my questions. Maybe first to start just on the commercial side, to follow up on one of the prior questions. Just very on a blended basis, you know, given, you know, this is a pretty large plan that you're moving up the formulary. Yeah, but on a blended overall basis for the franchise, should we expect gross to net to kind of incrementally increase in 2024 versus the full year 2023, given that move?

Barry Flannelly (EVP and General Manager, North America)

Mark, I'm not really sure, to be honest with you. We'll have to see what the volume is and what the improvement in copays is to see how it affects our gross to net. But anyway, we'll see. But there's always a, you know, a chance that we could actually benefit a great deal from net sales by making it much easier for patients to be able to access our drug.

Operator (participant)

Thank you. Next question is coming from Vikram Purohit from Morgan Stanley. Your line is now live.

Gospel Enyindah-Asonye (Equity Research Associate)

Good morning, this is Gospel on for Vikram. We have two questions for Jakafi. I mean, due to the recent approval of GSK's Ojjaara. The first one is, what portion of MF patients using Jakafi can you estimate are using a suboptimal dose due to anemia? And in this patient population, have you seen an increased rate of discontinuations as prescribers and patients potentially move towards Ojjaara? And secondly, have you observed a decrease in Jakafi new patient start in MF since Ojjaara was approved? Thank you.

Barry Flannelly (EVP and General Manager, North America)

Well, Gospel, you know, the most important thing is that... So Ojjaara only got approved on September fifteenth. It really only launched in the last week of the year. I'd be surprised if there was actually any sales except for stocking sales in the quarter. So anyway, so I can't imagine that it affected any part of us yet. Now, what percent of patients might be receiving a suboptimal dose? You know what we've only said before, I believe, is that the number of patients who are at steady state on, you know, 5mg twice a day dose or something like that is only about 5% of our patients. I believe those patients are actually getting benefit, but that's the most.

you know, just like in our clinical trials, SIMPLIFY-1 trial, I mean, only one patient discontinued for anemia. So, we don't believe that that's a big part of it. And like I said before, about the benefits that Jakafi provides to MF patients, whether they're anemic or non-anemic, it's overall survival, it's symptom control, it's spleen control. So, so far, we don't really see. We don't really anticipate impact by momelotinib, certainly in the third quarter.

Operator (participant)

Thank you. Our next question today is coming from Matt Phipps from William Blair. Your line is now live.

Matthew Phipps (Senior Biotechnology Research Analyst)

Thanks for taking my questions. I wonder on the, povorcitinib phase III plans in vitiligo, how you can structure that trial to complement the current Opzelura utilization opportunities? Is it really just around baseline VASI scores? And then, as you think further out about additional opportunities for povorcitinib, what are you keeping in mind, considering it, it looks based on the profile so far as to work in a pretty wide range of more classical autoimmune indications, but clearly there you might have more competition?

Steven Stein (EVP and Chief Medical Officer)

Matt, hi, it's Steven. Thanks for the question. So in terms of vitiligo, as we showed you, you know, the data in more extensive non-segmental vitiligo, you know, we saw, you know, really good effect in terms of facial VASI, facial VASI 75 and above, and then total VASI as well, body repigmentation of 50% or above. We will disclose, you know, when we go onto clinicaltrials.gov, what the endpoints are and what doses we'll be using. So it's premature to point you towards that, other than just broadly tell you that the population we target in is people with more extensive body surface area involvement when you compare it to the cream, which is indicated for people with 10% or below.

This would open up the vitiligo community with people with much more extensive body surface area involvement, where it becomes a little, pragmatically hard to apply, you know, cream across the body, and an oral JAK can be used in that setting with the right therapeutic ratio. And as we got it to, you know, we want to get the study going by the end of this calendar year. Povorcitinib is, you know, relatively JAK1 specific. You saw, you know, the program in HS, both STOP HS I, STOP HS II are enrolling really, really well based on the, you know, what we think is excellent phase II data, including that HiSCR100 response. But as you allude to, you know, we have now, you know, data in, in prurigo nodularis, that's excellent, and we want to progress that into phase III.

And then ongoing efforts beyond dermatology in asthma and chronic spontaneous urticaria, where the biology points to-

... this kind of JAK1 agent potentially showing substantial benefit in patients with more severe asthma, who on, on inhaled corticosteroids, long-acting bronchodilators, and still having yearly exacerbations. That's a phase II proof of concept study and then standard endpoints in chronic spontaneous urticaria. So, you know, we – this drug has demonstrated thus far, you know, remarkable activity in those areas where we, where we, where we're studying in phase III now, and we'll see what happens in asthma and CSU. So thanks for the question.

Operator (participant)

Thank you. Next question today is coming from Michael Schmidt from Guggenheim Securities. Your line is now live.

Paul Jeng (Equity Research Associate)

Hey, good morning. This is Paul on for Michael. Thanks for taking our question. I just wanted to build on the prior question. Can you talk about how you plan to position ruxolitinib in prurigo nodularis in the planned phase III, relative to sort of how you design the ongoing phase III studies for Opzelura? Is there a meaningful difference in the target patient populations, and how should we think about the specific addressable opportunities within PN for the two programs? Thank you.

Steven Stein (EVP and Chief Medical Officer)

Yeah, thank you for the question. Just so you know, in terms, and Hervé said this upfront in his remarks, there's a prevalence, you know, upwards of 200,000+ patients, but there are about 80,000-100,000, you know, that currently get treated in this setting. And their main manifestation of their disease is itch, and very severe itch. And that's what the phase II showed, you know, that activity in that setting across the dose ranges. I think it's premature beyond that to talk about, you know, the endpoint and the dose we'll be using because we've just got the phase II data in. But it will be, again, because it's an oral agent, targeting the more severe spectrum of PN. That's what I can tell you now. Thanks.

Operator (participant)

Thank you. Our next question is coming from Mara Goldstein, from Mizuho Securities. Your line is now live.

Mara Goldstein (Managing Director of Equity Research Department)

Great. Thanks so much for taking the question. I just was hoping actually to get a little bit more color on the Medicaid penetration with respect to Opzelura, because, you know, last quarter, it was identified as a jump in the payer mix that had an effect, right, on Opzelura and the gross net. And then secondarily, I'm just hoping maybe you could talk a little bit about PV for Jakafi. I mean, It looks like the percentage, just eyeballing it, right, of Jakafi sales from PV has remained relatively stable. And I'm curious as to, with this new data and potentially earlier patient starts, where you think the growth could be.

Barry Flannelly (EVP and General Manager, North America)

Sure. So as far as the Medicaid patients for Opzelura goes, it's about 14% of paid patients. You know, as we said in the past, we had such good coverage for Medicaid throughout all 50 states, that it was sort of grew faster than perhaps the commercial patients. So, I think that answers part of your question. For Jakafi and PV, I guess if you're looking at the slide that we had there, you know, PV, it continued in terms of the patient share, it, you know, is about 35% or so at any given time. For example, this year, year to date, there's more than 8,000 patients on PV, but PV patients stay on the drug for a long time.

So we're talking about what we think now, now the average is about 41 months that patients are staying on Jakafi for PV. So that's important. So every new PV patient becomes, you know, that more important. And we think that there's lots of patients who are currently on other therapies, including hydroxyurea, that would benefit from moving to Jakafi earlier. And now that we have a study where there was no crossover, so that you can actually evaluate the long-term thrombosis-free survival, and in fact, progression-free survival for patients, that that's really an indicator that you really should start earlier with an effective therapy like Jakafi.

We think that's really where the upside is here, is that each and every PV patient is valuable, and we can provide them with really effective therapy to manage their disease long term. That's what our growth expectations are. Thanks.

Operator (participant)

Thank you. Next question today is coming from Andrew Berens, from SVB Securities. Your line is now live.

Andrew Berens (Senior Research Analyst)

Hi, thanks. Can you remind us how you see INCA033989 fitting into the treatment paradigm for MF relative to the JAK agents? And then, do you see the regulatory pathway leveraging surrogate endpoints for approval, or would you want to show a decrease in malignant transformation in this subgroup?

Steven Stein (EVP and Chief Medical Officer)

Andy, were you asking about Steven, just to clarify your question about mutant CALR and V617F in the future? We couldn't hear clearly your first part of your question.

Andrew Berens (Senior Research Analyst)

Yeah. Yeah, I'm just, I'm trying to understand how you see that fitting into the treatment paradigm relative to the JAK agents?

Steven Stein (EVP and Chief Medical Officer)

Okay, great. Thank you. So, you know, as Pablo said in his remarks, you know, a remarkable effort from our research group to come up with compounds that now, you know, target new areas of biology. So in terms of mutant CALR, it's about 25%-30% of myelofibrosis and ET. It's a neoantigen that's expressed, and the antibody targets that and could eradicate the clone. So you could be talking about a very new treatment paradigm that's disease-modifying or potentially, in inverted commas, curable, if you eliminate the clone in those settings. Obviously, we're early in the clinic, we need to prove it's safe and get there, but it's...

There's a lot of excitement and obviously got a plenary at ASH last year because of that, with the mutant CALR antibody. In terms of where it fits in, you know, it won't be an agent that's, you know, in the way we think about spleen volume reduction and symptom improvement. It could be, as I said, to be a little bit repetitive, eliminate the clone and sort of get rid of the disease, if you will. The same with V617F, you know, a target that many have pursued for a long time. And again, you know, credit to our research group for coming up with, as Pablo pointed out, a very novel way of targeting the mutation in the JH2 domain. And then again, the idea would be to eliminate the clone and disease modify it. And this is a bigger population.

It's about 50% of MF, 60% of ET, and 95% plus of polycythemia vera. So for the first time now, we've been able to show you that we've come up with a target in PV, where it's an area where we haven't been able yet to give you anything new beyond RUX. We're very excited about that. Again, it's early, we have to get the R&D across the finish line and get into the clinic, but it's superb science and would be a very different way of thinking about those entities. So thanks for the question.

Operator (participant)

Thank you. Next question is coming from Jay Olson from Oppenheimer. Your line is now live.

Cheng Li (Director of Biotech Equity Research)

Oh, hi, this is Cheng, the line for Jay. Thanks for taking the question. So just follow on the prior question, just for the V617F mutations. I'm just wondering, you are thinking about the monotherapy versus combination approach going forward. And just on the slide, it seems like those CALR mutations and the V617F mutations are mutually exclusive. So just want to confirm if that's correct. And just a quick question on Opzelura. Wondering if you can talk about the splits between AD and vitiligo in Q1. That'd be great. Thank you.

Pablo Cagnoni (President and Head of Research and Development)

So, this is Pablo. Let me take the first part of the question. So as Steven mentioned, and I explained in my remarks, it's early days for both programs. I think that when you start thinking about how to position them and the potential combination with Jakafi, I think we need to get through a few cohorts in the phase I studies, understand the profile of these two new medicines, and then we'll start building a combination strategy. I think potentially that could be the case, particularly, as you start thinking about symptom resolution with Jakafi early in the treatment paradigm, and then using either V617F or the mutant CALR antibody to then try to eliminate the clone and potentially transform the outcomes in these diseases.

The second part of your question, I think, was related to whether these are mutually exclusive, and they are. And that's actually an important point in understanding how to position them in the future. And then I think you had a question about AD, which I'll pass over to Barry.

Barry Flannelly (EVP and General Manager, North America)

Yeah, Cheng, I didn't really hear you. So AD versus vitiligo, what were you trying to say? What is the, whether it's the script volume?

Cheng Li (Director of Biotech Equity Research)

Yeah, that's

Pablo Cagnoni (President and Head of Research and Development)

Okay.

Cheng Li (Director of Biotech Equity Research)

split between AD and vitiligo. Thank you.

Pablo Cagnoni (President and Head of Research and Development)

Sure. Currently, it's about 60/40, so 60% AD, 40% vitiligo.

Cheng Li (Director of Biotech Equity Research)

Thanks.

Operator (participant)

Thank you. Next question is coming from Ren Benjamin, from JMP Securities. Your line is now live.

Reni Benjamin (Managing Director and Equity Research Analyst)

Hey, good morning, guys. Thanks for taking the questions. Maybe for Steven. Steven, can you talk a little bit about how you view the competitive landscape in PN and HS, and could the landscape change prior to your phase III readouts, or, or are you the clear sort of, you know, market leader in, in, in both indications? And I guess just as a, as a second sort of follow-up question, maybe for Hervé. You guys are generating significant, you know, cash flow. You have a strong balance sheet. The pipeline is largely ignored by investors, and is, you know, significantly down. Can you talk maybe a little bit about the process that you might be going through to, you know, maybe switch gears, maybe acquire an entire company, platform, pipeline, and all, versus striking kind of one-off product collaboration agreements?

Steven Stein (EVP and Chief Medical Officer)

I'll start and then hand it over to Steven. So, let me remind you, so povorcitinib is an oral agent. In both entities you're talking about, you know, are becoming, you know, very interesting in terms of the science, a lot of targeting with different modalities, but in, they're mostly intravenous IV, large molecules that target things like IL-17, so very specific biology. Whereas in, you know, these entities, there's more broad biology, and that's why we think JAK may be important here, both in PN and HS. An oral agent, now we've shown, you know, what we think is very strong proof of concept data in both entities. HS, we have ongoing two phase IIIs, and PN will be proceeding there. Sure, you know, the landscape can always change.

As part of any assessment we do, we look at the competitive landscape and what, what may occur. But in terms of, you know, an oral agent, we think that's, that's the big differentiator here. And then I'll hand it over for the second part of your question.

Hervé Hoppenot (CEO and Chairman)

So, your question about the, you know, the way are we sort of turning into a new direction regarding the use of cash? And the answer is we are still continuing to look at opportunities outside of the company. We are still investing in our pipeline, but as you have noticed, you know, our growth of the revenue continues to be faster, higher than the growth of our expenses. So we continue to generate leverage, and we continue to have an increasing cash flow, you know, quarter after quarter. And we are looking at opportunities to continue to add to the growth of the corporation in the year 2025-2030. So it's a relatively broad target. Obviously, valuations have been fluctuating a lot in the past months, and it's creating opportunities that we are looking at.

There is clear willingness for the right price to add new products that would be fitting with our portfolio if we can. We could do it through partnership or acquisition. In fact, we think both would be appropriate, and it's a financial question, or it's a question of willingness to go one route or the other, but we could do it either way.

Operator (participant)

Thank you. Next question is coming from Derek Archila from Wells Fargo. Your line is now live.

Speaker 22

Good morning. This is Evelyn for Derek. Thanks for taking our question. A quick one from us, can you provide some color on the pace of the pipeline development and whether it will be timely enough to offset Jakafi loss of exclusivity? Thanks.

Steven Stein (EVP and Chief Medical Officer)

So, thanks for the question. Absolutely, that's the case. So I'll be a little repetitive. You know, the XR program, we're busy in terms of response to the FDA now, and the idea is to get the XR approval prior to the loss of the LOE for RUX. Both BET and ALK programs, you know, we want to declare where we go, and if we go into registration studies, you know, end of this year, early part of next year, and it'll give us enough time to execute a phase III program and get across the finish line there. So that's absolutely the intent. The mutant CALR and V617F, as Pablo said, are early, but great promise of disease-modifying agents. And so it's a little unclear the regulatory path there, and it'll depend on demonstrating safety and efficacy.

But we will, you know, we'll see if that keeps going well, you could potentially execute a, you know, rapid phase III program, but it's really too early to say. Thanks.

Hervé Hoppenot (CEO and Chairman)

Maybe I can add, I mean, on this, this view about the, the Jakafi, patent expiration and the way we are sort of allocating resources, that's basically the eight program. You saw one of the slides is speaking about the eight program that we are prioritizing in R&D, and that's where you have the list of the programs that will be impacting our revenue in the years that are coming relatively soon, with CALR being maybe the one that is a little bit of a stretch, but for everything else, it could, it could come, before that time. And the povorcitinib program, which is increasing. Today, we had the news of an additional indication in, in prurigo nodularis, is, you know, in phase III now for one indication, HS. Phase III is being planned for prurigo nodularis and vitiligo.

So all of that should be coming in the years that, that precede the patent expiration for Jakafi.

Operator (participant)

Thank you. Our final question today is coming from Evan Siegerman from BMO Capital Markets. Your line is now live.

Speaker 20

Hi, Mark [Moorman] on for Evan. Just wanted to ask, with the pre-submission meeting with FDA planned for rux cream in pediatric patients, are there any nuances with that submission in the pediatric population versus adults that you think will require special consideration for the FDA and insight? And has there been any indication on when that meeting may take place? Thank you.

Steven Stein (EVP and Chief Medical Officer)

Steven, so we don't, you know, guide to when we have the actual meetings, but the only nuance in pediatrics is, you know, some safety requirements to demonstrate under maximum use conditions that there's no, you know, increased levels or untoward side effects. We've completed that work. We're satisfied with the results, and we're discussing it with the FDA. So that'll put our submission, you know, sometime hopefully in the first half of next year in terms of having that complete data set and submitting it then, and we're very comfortable with the data. Thanks.

Operator (participant)

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.

Barry Flannelly (EVP and General Manager, North America)

Thank you all for participating on today's call and for your questions. The IR team will be available for the rest of the day. Please don't hesitate to reach out. Thank you.

Operator (participant)

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.