On February 14, 2017 Incyte Corporation (Nasdaq:INCY) reported 2016 fourth-quarter and year-end financial results, highlighting strong revenue growth driven by increased sales of Jakafi (ruxolitinib) in the U.S. and Iclusig (ponatinib) in Europe, and royalties from ex-U.S. sales of Jakavi (ruxolitinib) by Novartis (Press release, Incyte, FEB 14, 2017, View Source [SID1234517714]).

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Additionally, Incyte is providing financial guidance for 2017.

“We have had a very productive year at Incyte, during which we expanded our geographic footprint to include Europe and further advanced our clinical portfolio, including the recently announced expansion of the epacadostat development program,” stated Hervé Hoppenot, Incyte’s Chief Executive Officer. “Having now surpassed $1 billion in total annual revenue for the first time, we believe we are in a strong position to execute on our discovery and development objectives and build a global biopharmaceutical company bringing medicines to patients in need.”
Baricitinib, a potential new oral treatment for patients with rheumatoid arthritis (RA) licensed to Eli Lilly and Company (Lilly), is now approved in Europe as Olumiant and is under regulatory review globally. The European approval of Olumiant triggers a $65 million payment to Incyte from Lilly, and Incyte is eligible to receive additional potential milestone payments, as well as royalties on sales of Olumiant. Incyte has recently opted into co-development of multiple new indications for baricitinib, including psoriatic arthritis, in which Lilly is expected to begin a Phase 3 trial in 2017.

Incyte continues to expand its development portfolio—the Company anticipates the initiation of new pivotal trials in at least six indications from its broad late-stage portfolio during 2017 and is conducting four Phase 2 trials which, if successful, could also potentially act as registration-enabling studies. Two recent strategic collaborations have added to Incyte’s early-stage R&D programs—the alliance with Merus provides access to bispecific drug discovery and the licensing agreement with Calithera adds INCB01158, a first-in-class oral arginase inhibitor, to Incyte’s immuno-oncology development portfolio.

Portfolio Update
Cancer – Targeted Therapies
The pivotal program investigating ruxolitinib as a treatment for patients with graft-versus-host disease (GVHD) has begun. REACH1, the pivotal Phase 2 trial in patients with steroid-refractory acute GVHD, enrolled its first patient in December 2016; the REACH2 and REACH3 randomized Phase 3 trials in steroid-refractory acute and steroid-refractory chronic GVHD, respectively, are expected to begin in 2017 in collaboration with Novartis.
A pivotal program of ruxolitinib as a treatment for patients with essential thrombocythemia is also expected to begin in 2017.
Itacitinib (formerly INCB39110), Incyte’s selective JAK1 inhibitor, is anticipated to enter a global pivotal development program for the treatment of patients with treatment-naïve acute GVHD during 2017.
In January 2017, Incyte disclosed its FGFR4 inhibitor discovery program, the lead molecule from which, INCB62079, is expected to enter proof-of-concept clinical trials during 2017.

Indication Status Update
Ruxolitinib (JAK1/JAK2) Steroid-refractory acute GVHD Pivotal (REACH1) trial underway; Phase 3 (REACH2) trial expected to begin in 2017
Ruxolitinib (JAK1/JAK2) Steroid-refractory chronic GVHD Phase 3 (REACH3) trial expected to begin in 2017
Ruxolitinib (JAK1/JAK2) Essential thrombocythemia Pivotal program expected to begin in 2017
Itacitinib (JAK1) Treatment-naïve acute GVHD Pivotal program expected to begin in 2017
Itacitinib (JAK1) Non-small cell lung cancer Phase 1/2 in combination with osimertinib (EGFR)
INCB52793 (JAK1) Advanced malignancies Phase 1/2 dose-escalation
INCB50465 (PI3Kδ) Diffuse large B cell lymphoma Phase 2 (CITADEL-202) expected to begin in first half of 2017
INCB54828 (FGFR1/2/3) Bladder cancer, cholangiocarcinoma; 8p11 MPNs Phase 2
INCB54329 (BRD) Advanced malignancies Phase 1/2 dose-escalation
INCB57643 (BRD) Advanced malignancies Phase 1/2 dose-escalation
INCB53914 (PIM) Advanced malignancies Phase 1/2 dose-escalation
INCB59872 (LSD1) Acute myeloid leukemia, small cell lung cancer Phase 1/2 dose-escalation
INCB62079 (FGFR4) Hepatocellular carcinoma Phase 1/2 dose-escalation expected to begin in 2017

Cancer – Immune Therapies
In January 2017, Incyte and Merck announced the decision to expand the clinical development program investigating epacadostat with pembrolizumab, and plan to initiate Phase 3 trials of the combination in four additional tumors beyond melanoma: non-small cell lung cancer, renal cell carcinoma, bladder cancer and squamous cell carcinoma of the head and neck. These Phase 3 trials are expected to begin in 2017.
In January 2017, Incyte announced that it licensed worldwide rights from Calithera Biosciences to develop and commercialize INCB01158, a first-in-class, oral arginase inhibitor in hematology and oncology indications.
In February 2017, Incyte and Agenus announced an amended agreement, converting the ongoing GITR and OX40 antibody programs from co-funded development and profit-sharing arrangements to royalty-bearing programs, with Incyte now responsible for global development and commercialization.

Indication Status Update
Epacadostat (IDO1) Unresectable or metastatic melanoma Phase 3 (ECHO-301) in combination with pembrolizumab (PD-1)
NSCLC, renal, bladder and head & neck cancer Phase 3 in combination with pembrolizumab (PD-1) expected to begin in 2017
Multiple tumor types Phase 2 (ECHO-202) expansion cohorts in combination with pembrolizumab (PD-1)
Multiple tumor types Phase 2 (ECHO-204) expansion cohorts in combination with nivolumab (PD-1)
Multiple tumor types Phase 2 (ECHO-203) expansion cohorts in combination with durvalumab (PD-L1)
NSCLC, bladder cancer Phase 1/2 (ECHO-110) dose-escalation in combination with atezolizumab (PD-L1)
INCB01158 (ARG, co-developed with Calithera)
Solid tumors Phase 1/2 dose-escalation
INCSHR1210 (PD-1, licensed from Hengrui)
Solid tumors Phase 1/2 dose-escalation completed; enrollment suspended
INCAGN1876 (GITR) Solid tumors Phase 1/2 dose-escalation
INCAGN1949 (OX40) Solid tumors Phase 1/2 dose-escalation

PD-1 platform study Solid tumors Phase 1/2, pembrolizumab (PD-1) in combination with itacitinib (JAK1) or INCB50465 (PI3Kδ)
JAK1 platform study Solid tumors Phase 1/2, itacitinib (JAK1) in combination with epacadostat (IDO1) or INCB50465 (PI3Kδ)

Non-oncology
A Phase 2 trial of topical ruxolitinib for the treatment of patients with atopic dermatitis has recently been initiated, and a Phase 2 trial in patients with vitiligo is expected to begin during 2017.

Indication Status Update
Topical ruxolitinib (JAK1/JAK2) Alopecia areata, atopic dermatitis Phase 2
Vitiligo Phase 2 expected to begin in 2017

Partnered
In February 2017, the European Commission approved baricitinib – which will be marketed as Olumiant – for the treatment of moderate to severe active rheumatoid arthritis in adult patients who have responded inadequately to, or who are intolerant to, one or more disease-modifying antirheumatic drugs (DMARDs). In January 2017, the FDA extended the review period for the new drug application (NDA) for baricitinib by three months to allow time to review additional data analyses submitted by Lilly.
Lilly has announced its intention to initiate a Phase 3 program investigating baricitinib as a treatment for patients with psoriatic arthritis during 2017, and Incyte has opted into co-development in this indication. Incyte has also opted into co-development in axial spondyloarthritis and atopic dermatitis, should Lilly decide to progress into a pivotal program in these indications.
Novartis anticipates submitting an NDA for capmatinib, Incyte’s potent and selective c-MET inhibitor, in 2018.

Indication Status Update
Baricitinib (JAK1/JAK2, licensed to Lilly) Rheumatoid arthritis Approved in Europe; FDA review extended by three months
Psoriatic arthritis Phase 3 expected to begin in 2017
Atopic dermatitis, systemic lupus erythematosus Phase 2
Capmatinib (c-MET, licensed to Novartis) Non-small cell lung cancer, liver cancer Phase 2 in EGFR wild-type ALK negative NSCLC patients with c-MET amplification and mutation

2016 Fourth-Quarter and Full-Year Financial Results
Revenues For the quarter ended December 31, 2016, net product revenues of Jakafi were $238 million as compared to $182 million for the same period in 2015, representing 30 percent growth. For the full year ended December 31, 2016, net product revenues of Jakafi were $853 million as compared to $601 million for the same period in 2015, representing 42 percent growth.
For the quarter and seven month period ended December 31, 2016, net product revenues of Iclusig were $13 million and $30 million, respectively1.
For the quarter and full year ended December 31, 2016, product royalties from sales of Jakavi outside of the United States received from Novartis were $33 million and $111 million, respectively, as compared to $24 million and $75 million, respectively, for the same periods in 2015.
For the quarter and full year ended December 31, 2016, contract revenues were $43 million and $113 million, respectively, as compared to $38 million and $78 million, respectively, for the same periods in 2015. The increase in contract revenues for the full year ended December 31, 2016 relates to milestone payments earned.
For the quarter ended December 31, 2016, total revenues were $326 million as compared to $244 million for the same period in 2015. For the full year ended December 31, 2016, total revenues were $1,106 million as compared to $754 million for the same period in 2015.

Year Over Year Revenue Growth
(in thousands, unaudited)

Three Months Ended Twelve Months Ended
December 31, % December 31, %
2016 2015 Change 2016 2015 Change
Revenues:
Jakafi net product revenue $ 237,531 $ 182,021 30% $ 852,816 $ 601,015 42%
Iclusig net product revenue 12,867 – – 29,588 – –
Product royalty revenues 33,225 23,646 41% 110,711 74,821 48%
Contract revenues 42,869 38,214 – 112,512 77,857 –
Other revenues 6 – – 92 58 –
Total revenues $ 326,498 $ 243,881 34% $ 1,105,719 $ 753,751 47%

Research and development expenses Research and development expenses for the quarter and full year ended December 31, 2016 were $162 million and $582 million, respectively, as compared to $117 million and $480 million, respectively, for the same periods in 2015. Included in research and development expenses for the quarter and full year ended December 31, 2016 were non-cash expenses related to equity awards to our employees of $17 million and $60 million, respectively. The increase in research and development expenses for the full year ended December 31, 2016 was primarily due to the expansion of the Company’s clinical portfolio.
Selling, general and administrative expenses Selling, general and administrative expenses for the quarter and full year ended December 31, 2016 were $96 million and $303 million, respectively, as compared to $52 million and $197 million, respectively, for the same periods in 2015. Included in selling, general and administrative expenses for the quarter and full year ended December 31, 2016 were non-cash expenses related to equity awards to our employees of $10 million and $36 million, respectively. Increased selling, general and administrative expenses are driven primarily by additional costs related to the commercialization of Jakafi and the geographic expansion in Europe.
Change in fair value of acquisition-related contingent consideration The change in fair value of acquisition-related contingent consideration of $7 million and $17 million for the quarter and seven month period ended December 31, 2016 represents the fair market value adjustments of the Company’s contingent liability related to the acquisition of the European business of ARIAD Pharmaceuticals, Inc.
Unrealized loss on long term investment Unrealized loss on long term investment for the quarter and full year ended December 31, 2016 were of $24 million and $3 million, respectively, as compared to $0 million and $5 million, respectively, for the same periods in 2015. The unrealized loss on long term investment represents the fair market value adjustments of the Company’s investment in Agenus.
Net income Net income for the quarter ended December 31, 2016 was $9 million, or $0.05 per basic and diluted share, as compared to net income of $55 million, or $0.30 per basic and $0.29 per diluted share for the same period in 2015. Net income for the full year ended December 31, 2016 was $104 million, or $0.55 per basic and $0.54 per diluted share, as compared to net income of $7 million, or $0.04 per basic and $0.03 per diluted share for the same period in 2015.
Cash, cash equivalents and marketable securities position As of December 31, 2016, cash, cash equivalents and marketable securities totaled $809 million, as compared to $708 million as of December 31, 2015.
2017 Financial Guidance
The Company has provided full year 2017 financial guidance, as detailed below.

Guidance
Jakafi net product revenues $1,020-$1,070 million
Iclusig net product revenues $60-$65 million
Research and development expenses: ongoing $785-$835 million
Research and development expenses: anticipated one-time items* $205 million
Selling, general and administrative expenses $340-$360 million
Change in fair value of acquisition-related contingent consideration $30-$35 million
* One-time items related to the amended Agenus collaboration, and the Merus and Calithera collaborations