On November 1, 2016 Incyte Corporation (Nasdaq: INCY) reported 2016 third-quarter financial results, including strong revenue growth driven by increased sales of Jakafi (ruxolitinib) in the U.S., Iclusig (ponatinib) in Europe and royalties from ex-U.S. sales of Jakavi (ruxolitinib) by Novartis (Press release, Incyte, NOV 1, 2016, View Source [SID1234516125]).

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In September, Jakafi was included as a recommended treatment for appropriate patients with myelofibrosis in the latest National Comprehensive Cancer Network (NCCN) Clinical Practice Guidelines in Oncology, underscoring the important and long-term clinical benefits seen in patients treated with Jakafi.

The Company also highlighted progress being made across its clinical portfolio. Within the targeted therapies segment, two Phase 2 trials of INCB54828, a selective FGFR inhibitor, are now open for recruitment in bladder cancer and cholangiocarcinoma, respectively. In immuno-oncology, updated Phase 1 data from ECHO-202 were recently presented at the ESMO (Free ESMO Whitepaper) Congress, supporting the therapeutic profile of epacadostat plus pembrolizumab for the first-line treatment of patients with advanced or metastatic melanoma.

"Incyte continues to deliver dynamic sales growth from Jakafi in the U.S. and now from Iclusig in Europe. With a potential additional future source of revenue from baricitinib, we are able to make significant investments in opportunities across our broad and diverse clinical portfolio," stated Hervé Hoppenot, Incyte’s Chief Executive Officer. "Our commercial footprint has expanded to include Europe in addition to the U.S., and as our portfolio matures, we are in an excellent position to build Incyte into a world-class biopharmaceutical organization."

2016 Third-Quarter Financial Results
Revenues For the quarter ended September 30, 2016, net product revenues of Jakafi were $224 million as compared to $161 million for the same period in 2015, representing 39 percent growth. For the nine months ended September 30, 2016, net product revenues of Jakafi were $615 million as compared to $419 million for the same period in 2015, representing 47 percent growth. For the quarter and four month period ended September 30, 2016, net product revenues of Iclusig were $13 million and $17 million, respectively1. For the quarter and nine months ended September 30, 2016, product royalties from sales of Jakavi outside of the United States received from Novartis were $30 million and $77 million, respectively, as compared to $18 million and $51 million, respectively, for the same periods in 2015. For the quarter and nine months ended September 30, 2016, contract revenues were $3 million and $70 million, respectively, as compared to $8 million and $40 million, respectively, for the same periods in 2015. The increase in contract revenues for the nine months ended September 30, 2016 relates to milestone payments earned. For the quarter ended September 30, 2016, total revenues were $269 million as compared to $188 million for the same period in 2015. For the nine months ended September 30, 2016, total revenues were $779 million as compared to $510 million for the same period in 2015.

Year Over Year Revenue Growth
(in thousands, unaudited)

Three Months Ended Nine Months Ended
September 30, % September 30, %
2016 2015 Change 2016 2015 Change
Revenues:
Jakafi net product revenue $ 223,892 $ 161,259 39 % $ 615,285 $ 418,994 47 %
Iclusig net product revenue 12,731 - - 16,721 - -
Product royalty revenues 29,626 18,138 63 % 77,486 51,175 51 %
Contract revenues 3,214 8,214 - 69,643 39,643 -
Other revenues 6 - - 86 58 -
Total revenues $ 269,469 $ 187,611 44 % $ 779,221 $ 509,870 53 %

In October 2016, the Company was notified by Novartis that a $40 million milestone payment obligation to Incyte related to reimbursement of Jakavi in Europe for polycythemia vera had been triggered. The Company expects to record this payment as contract revenue during the fourth quarter of 2016.

Research and development expenses Research and development expenses for the quarter and nine months ended September 30, 2016 were $143 million and $420 million, respectively, as compared to $132 million and $363 million, respectively, for the same periods in 2015. Included in research and development expenses for the quarter and nine months ended September 30, 2016 were non-cash expenses related to equity awards to our employees of $16 million and $43 million, respectively. The increase in research and development expenses for the nine months ended September 30, 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 nine months ended September 30, 2016 were $76 million and $207 million, respectively, as compared to $48 million and $144 million, respectively, for the same periods in 2015. Included in selling, general and administrative expenses for the quarter and nine months ended September 30, 2016 were non-cash expenses related to equity awards to our employees of $10 million and $26 million, respectively. Increased selling, general and administrative expenses are driven primarily by additional costs related to the commercialization of Jakafi.

Change in fair value of acquisition-related contingent consideration The change in fair value of acquisition-related contingent consideration of $8 million and $10 million for the quarter and nine months ended September 30, 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 gain on long term investment Unrealized gain on long term investment of $24 million and $20 million for the quarter and nine months ended September 30, 2016 represents the fair market value adjustments of the Company’s investment in Agenus.
Net income / (loss) Net income for the quarter ended September 30, 2016 was $37 million, or $0.20 per basic and $0.19 per diluted share, as compared to net loss of $40 million, or $0.22 per basic and diluted share for the same period in 2015. Net income for the nine months ended September 30, 2016 was $95 million, or $0.51 per basic and $0.49 per diluted share, as compared to net loss of $49 million, or $0.27 per basic and diluted share for the same period in 2015.

Cash, cash equivalents and marketable securities position As of September 30, 2016, cash, cash equivalents and marketable securities totaled $717 million, as compared to $708 million as of December 31, 2015.

2016 Financial Guidance
The Company has updated its full year 2016 financial guidance, as detailed below.


Current

Previous
Jakafi net product revenues
$850-$855 million $825-$835 million
Iclusig net product revenues
$25-$30 million Unchanged
Research and development expenses
$570-$580 million $620-$630 million
Selling, general and administrative expenses
$285-$310 million Unchanged
Change in fair value of acquisition-related contingent consideration
$17 million Unchanged

Portfolio Update
Cancer – Targeted Therapies
Two trials of INCB54828, a selective FGFR inhibitor, in patients with bladder cancer and cholangiocarcinoma, respectively, harboring FGFR alterations are now open for recruitment.

Incyte has two BRD inhibitors in clinical trials, INCB54329 and INCB57643. Having two distinct compounds allows the Company to evaluate the clinical safety and tolerability of different pharmacokinetic and pharmacodynamic profiles within a therapeutic class.


Indication

Status Update
Ruxolitinib (JAK1/JAK2)
Graft versus host disease Pivotal program expected to begin in the fourth quarter of 2016
INCB39110 (JAK1)
Graft versus host disease Phase 1/2 fully recruited, data expected before the end of 2016
INCB39110 (JAK1)
Lung cancer Phase 1/2 in combination with osimertinib (EGFR) expected to begin in the fourth quarter of 2016
INCB52793 (JAK1)
Advanced malignancies Phase 1/2 dose-escalation
INCB50465 (PI3Kδ)
B-cell malignancies Phase 1/2 as monotherapy and in combination with INCB39110 (JAK1)
INCB54828 (FGFR)
Bladder cancer, cholangiocarcinoma Phase 2 open for recruitment
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

Cancer – Immune Therapies
Updated Phase 1 data from the ECHO-202 trial of epacadostat plus pembrolizumab was recently presented at ESMO (Free ESMO Whitepaper), showing durable responses in patients with advanced or metastatic melanoma, and a well-tolerated safety profile. These data reinforce Incyte’s confidence in the decision to move this immunotherapy combination into the ongoing ECHO-301 Phase 3 trial for the first-line treatment of patients with advanced or metastatic melanoma.

Indication Status Update
Epacadostat First line, advanced melanoma Phase 3 (ECHO-301) in combination with pembrolizumab (PD-1)
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)
Non-small cell lung cancer, bladder cancer Phase 1/2 (ECHO-110) dose-escalation in combination with atezolizumab (PD-L1)
INCSHR1210 (PD-1,
licensed from Hengrui) Solid tumors Phase 1/2 dose-escalation completed; enrollment suspended
INCAGN1876 (GITR,
co-developed with Agenus) Solid tumors Phase 1/2 dose-escalation
INCAGN1949 (OX40,
co-developed with Agenus) Solid tumors Phase 1/2 dose-escalation expected to begin in the fourth quarter of 2016

PD-1 platform study Solid tumors Phase 1/2, pembrolizumab (PD-1) in combination with INCB39110 (JAK1) or INCB50465 (PI3Kδ)
JAK1 platform study Solid tumors Phase 1/2, INCB39110 (JAK1) in combination with epacadostat (IDO1) or INCB50465 (PI3Kδ)

Non Oncology
Data from Incyte’s Phase 2 trial of topical ruxolitinib for the treatment of patients with alopecia areata have been accepted for presentation at the National Alopecia Areata Foundation’s Alopecia Areata Research Summit on November 14, 2016.

Indication Status Update
Topical ruxolitinib (JAK1/JAK2) Alopecia areata Phase 2

Partnered
Baricitinib, a JAK1/JAK2 inhibitor licensed to Lilly, is under global regulatory review for the treatment of patients with rheumatoid arthritis. If approved, Incyte will become eligible to earn regulatory and commercial milestones as well as royalties on global net sales.
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 NDA & MAA submitted
Atopic dermatitis, systemic lupus erythematosus Phase 2
Capmatinib (c-MET, licensed to Novartis) Non-small cell lung cancer, glioblastoma, liver cancer Phase 2 in EGFR wild-type ALK negative NSCLC patients with c-MET amplification and mutation