Incyte Q3 2022 Earnings Call Transcript

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Provided by Quartr
November 1, 2022

Key Takeaways

  • In Q3, Incyte delivered 20% year-over-year product revenue growth to €713 million, led by Jakafi net sales rising 13% to $620 million and Opselura net sales more than doubling to $38 million.
  • Opselura has become the leading new prescription for atopic dermatitis with a 17% new-patient share, high prescriber satisfaction and rapid itch relief, while payer coverage increased from 39% to 63% in Q3 and reached 70% in October.
  • Jakafi continued to expand in myelofibrosis, polycythemia vera and chronic GVHD with new patient starts up 8–20%, allowing Incyte to tighten full-year Jakafi revenue guidance to $2.38–2.40 billion.
  • Key pipeline milestones include pivotal 2023 data for axatilimab in chronic GVHD and a ruxolitinib + parsaclisib combo in myelofibrosis, plus progress in an oral PD-L1 program and late-stage dermatology assets such as povorcitinib in hidradenitis suppurativa.
  • Incyte reaffirmed its 2022 R&D and SG&A guidance, revised other hematology/oncology revenue to $200–210 million, and expects to exit the year with a 40–50% gross-to-net rate for Opselura after ending its full buy-down program.
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Earnings Conference Call
Incyte Q3 2022
00:00 / 00:00

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Operator

Hello, and welcome to the Incyte Third Quarter 2022 Financial and Corporate Update Conference Call and Webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Christine Chiou, Head of Investor Relations. Please go ahead.

Christine Chiou
Christine Chiou
Head of Investor Relations at Incyte

Thank you, Kevin. Good morning, and welcome to Incyte's third quarter 2022 earnings conference call and webcast. The slides presented today are available for download on the investor section of our website. Joining me on the call today are Hervé, Barry, Steven, and Christiana, who will deliver our prepared remarks, and Dashyant, who will join us for the Q&A. Before we begin, I'd like to remind you that some of the statements made during the call today are forward-looking statements and are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our reports filed with the SEC. We will now begin the call with Hervé.

Hervé Hoppenot
Hervé Hoppenot
CEO at Incyte

Thank you, Christine, and good morning, everyone. In the second quarter, our product revenues increased 20% year-over-year to $713 million, benefiting from strong Jakafi sales growth as well as an increasing contribution from Opzelura net sales. Jakafi net sales grew 13% -$620 million, driven by robust growth in chronic GVHD, as well as new patient growth in MF and PV. Opzelura net sales more than doubled versus prior quarters to $38 million, and we continued to execute on the successful launch in AD and vitiligo, driving increased demand while also significantly improving formulary access. The ex-US launches of Pemazyre and Minjuvi, which are both still in early stages, contributed to the 19% growth coming from other hematology and oncology products. Turning to slide five.

Hervé Hoppenot
Hervé Hoppenot
CEO at Incyte

We have multiple opportunities for significant growth in both oncology and dermatology with our recent approvals and the potential for multiple new products and new indications over the next several years. For our oncology portfolio, recent launches in new indication and new markets provide further growth opportunities for Jakafi, Pemazyre, and Minjuvi. In LIMBER, pivotal data from two programs, axatilimab in chronic GVHD and ruxolitinib plus parsaclisib in MF, are expected next year. We expect data for BET ALK2 in 2022 and 2023 to define the path forward for this program. Outside of MPNs and GVHD, we have multiple early and late-stage clinical programs, including our oral PD-L1 program, which was the first to show clinical activity as an oral PD-L1, and we have updated data at SITC next week.

Hervé Hoppenot
Hervé Hoppenot
CEO at Incyte

In addition to oncology is our dermatology franchise, where Opzelura is a key near-term driver with launches currently underway in atopic dermatitis and vitiligo. Our dermatology pipeline is expanding, with new indications being developed for ruxolitinib cream, as well as povorcitinib and auremolimab in areas of high unmet medical need. This positions us well for significant growth and diversification. With that, I'll turn the call over to Barry.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Thank you, Hervé, and good morning, everyone. The launch of Opzelura continues to be very successful, with double-digit demand growth in atopic dermatitis and strong uptake in vitiligo. Net sales grew 130% quarter-over-quarter to reach $38 million, led by strong patient demand and broader reimbursement coverage for Opzelura. Over 62,000 units of Opzelura were shipped in the quarter, representing a growth of 32% versus Q2. The positive feedback loop between patients and physicians driven by the efficacy of Opzelura continues to fuel the uptake in atopic dermatitis. Opzelura in vitiligo has been well-received by both physicians and patients and is adding further to growth in demand. Opzelura access continues to improve as NDC blocks are removed and payers continue to add Opzelura onto their formularies. Turning to slide 8 in Opzelura in AD.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Opzelura is now the number one prescribed agent for new AD patients amongst dermatologists with a new patient share of 17%. Opzelura is changing the treatment paradigm, helping to break the cycle of repeated failures on topical corticosteroids and calcineurin inhibitors. The number of dermatologists gaining experience with Opzelura continues to increase, and 96% of prescribers are reporting satisfaction with Opzelura. Efficacy and rapid itch reduction continues to be a top driver for prescribing. When it comes to selecting patients for therapy, dermatologists consider half of their AD patients as candidates for Opzelura. We expect the number of patient initiations per prescriber to continue to increase over time. Turning now to launch in vitiligo, where we are seeing positive early momentum. Awareness levels are high, with 9 out of 10 dermatologists aware of Opzelura as a treatment for vitiligo.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Dermatologists view Opzelura, which is the first ever approved treatment for repigmentation, as a transformative therapy for patients living with vitiligo. In a recent survey, as shown on the left, dermatologists indicated their use of Opzelura in vitiligo would more than triple in the next six months. Of their currently treated vitiligo patients, dermatologists consider nearly 70% could be candidates for treatment with Opzelura. For the 1.3 million diagnosed vitiligo patients who are currently not seeking treatment, we are launching several initiatives, including direct consumer campaigns, patient advocacy group engagements, and branded patient meetings to raise awareness and encourage those patients to seek treatment now that there is a new approved therapy. Both AD and vitiligo are substantial opportunities, and we expect Opzelura to become a meaningful growth driver over the next several years.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

On Slide 10, payer coverage for Opzelura continues to improve, with the percentage of covered claims increasing from an average of 39% in the second quarter to 63% in the third quarter and reaching 70% in October. With an increasing number of plans adding Opzelura onto formularies and the continued removal of NDC blocks, we have started to gradually shut down the full buy-down program and transition to a more traditional free drug bridging program. We expect to fully discontinue the full buy-down program around the end of the year. Please note that during this period of transition to the free drug bridging program, we expect variability in how IQVIA captures those prescriptions, which may lead to data not being representative of the actual prescription levels and trends. Moving on to Jakafi performance on Slide 11.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Jakafi net sales in the third quarter grew 13% year-over-year to $620 million, driven by growth in new patients across all indications. Within myelofibrosis, new patient starts grew by 8% and in polycythemia vera by 9%. Total GVHD patients grew 20% year-over-year with a continued successful launch in the chronic setting. With strong demand for Jakafi, we are again tightening the full year net product revenue guidance from a range of $2.36-$2.4 billion to a new range of $2.38-$2.4 billion. Turning to Slide 12, Iclusig net product sales in the U.S. were $22 million in the third quarter. We continue to see gradual improvement in duration of therapy as use continues to expand in the second line.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Monjuvi net sales were $6 million for the quarter, with the launch going well in Germany, and we have seen several months of consecutive growth. Pemazyre worldwide net sales were $23 million, with the launch continuing to progress in Europe and Japan. During the quarter, we also received approval of Pemazyre as the first targeted therapy in the United States for myeloid/lymphoid neoplasms with FGFR1 rearrangement, an extremely rare and aggressive blood cancer. With that, I'll turn the call over to Steven.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Thank you, Barry, and good morning, everyone. We recently presented positive phase II data of povorcitinib in hidradenitis suppurativa at the 2022 European Academy of Dermatology and Venereology Congress, which demonstrated that patients on povorcitinib had significantly greater decreases in total abscess and inflammatory nodule count versus placebo from baseline to week 16. In addition, HiSCR, which is defined as a greater than or equal to 50% reduction in the total abscess and inflammatory nodule count, and no increase in abscess count or draining fistulas compared to baseline, was achieved in a greater percentage of povorcitinib patients than placebo at week 16. Hidradenitis suppurativa represents a significant opportunity where there are more than 150,000 patients with moderate to severe disease in the United States.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

In October, our pivotal phase III data of ruxolitinib cream in vitiligo was published in The New England Journal of Medicine, and these data highlight the positive efficacy and safety profile of Opzelura as a treatment for repigmentation in vitiligo. The MAA for Opzelura in vitiligo is under review, and we expect a regulatory decision in the first half of next year. Moving to slide 16. Last month, we announced our agreement to acquire Veralis Therapeutics and auremolimab, a highly potent and selective anti-IL-15 receptor beta monoclonal antibody. IL-15 signaling occurs upstream of the JAK-STAT pathway and demonstrates a strong scientific rationale for the evaluation of IL-15 blockade in vitiligo and other dermatologic conditions. In vitiligo, preclinical data suggests that maintenance and relapse is driven by resident memory T cells, or TRM in the skin.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

IL-15 is critical for the survival of TRM, and IL-15 blockade may result in the depletion of resident memory T cells, leading to a longer and more durable repigmentation effect. The addition of auremolimab to our dermatology portfolio bolsters our commitment to patients living with vitiligo and potentially offers optionality based on severity of disease, as well as different dosing options that may allow for combination therapy, all of which is complementary to our JAK franchise. We are planning on entering clinical development with auremolimab in 2023. On slide 17 is an updated table of our extensive clinical development pipeline in dermatology. With regard to ruxolitinib cream in hand eczema, after discussions with the FDA, it was deemed not necessary to run larger phase III clinical trials in chronic hand eczema as the indication is covered by the current label.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

We have also added two new indications in the development plan for ruxolitinib cream with two phase II trials in preparation for lichen sclerosus and lichen planus. Additionally, our auremolimab in vitiligo has been included, which is expected to enter clinical development in 2023, as I mentioned earlier. Turning to slide 18 in axatilimab. As a reminder, the phase I/2 study in chronic graft-versus-host disease, this was an open-label study evaluating axatilimab, an anti-CSF1R antibody in patients six years and older with active chronic graft-versus-host disease in the third-line+ setting. In this heavily pretreated patient population, axatilimab monotherapy resulted in a best overall response rate of 68% across both doses of 1 mg/kg every two weeks and three mg/kg every four weeks.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

53% of patients reported a clinically meaningful improvement in their symptoms via the Lee Symptom Scale. Axatilimab was also well tolerated and demonstrated an acceptable safety profile with no viral reactivations in the study. Looking ahead, we anticipate data from the ongoing AGAVE-201 pivotal trial in chronic graft-versus-host disease in mid-2023, and thus a potential BLA filing later in 2023. In addition, a combination trial of axatilimab and ruxolitinib in steroid-naive chronic graft-versus-host disease is in preparation with an expected initiation in the first quarter of next year. On the next slide, our progress in myeloproliferative neoplasms and graft-versus-host disease in general. We continue to advance our LIMBER pipeline and expect to achieve many important milestones in the remaining months of 2022 and into 2023.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

The phase I study of ruxolitinib in combination with Cellenkos's CK0804 in myelofibrosis has initiated with the first patient dose in October. Later this year, we expect to present initial data from the BET and ALK2 programs. The target action date for once-daily ruxolitinib is March 23, 2023, and we expect top line results from the phase III study of parsaclisib plus ruxolitinib in inadequate responders in 2023 as well. Turning to slide 20 in our oral PD-L1 program. We continue to progress the development of our oral PD-L1 program with two compounds, 280 and 318, which have been prioritized based on observation of tumor shrinkage and to date, no evidence of peripheral neuropathy with either compound.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

We will be presenting updated data on both compounds at the Society for Immunotherapy of Cancer annual meeting in Boston next week. The third quarter was successful for Incyte across regulatory, clinical, and business development, and we are looking forward to an exciting close to the year. I'd like to turn the call over to Christiana for the financial update.

Christiana Stamoulis
Christiana Stamoulis
EVP and CFO at Incyte

Thank you, Steven, and good morning, everyone. Our third quarter results reflect a continued strong revenue growth with total product revenues of $713 million, representing an increase of 20% over the third quarter of 2021. Total product revenues are comprised of $620 million for Jakafi, $55 million for other hematology oncology products, and $38 million for Opzelura. Net product revenue growth was primarily driven by increases in Jakafi and Opzelura net revenues. Hematology oncology net revenues, which include revenues from Iclusig, Pemazyre, and Minjuvi, were impacted by unfavorable changes in foreign exchange rates. On a constant currency basis, other hematology oncology net product revenues grew by 32% over the prior year period.

Christiana Stamoulis
Christiana Stamoulis
EVP and CFO at Incyte

Total royalty revenues for the quarter were $110 million and are comprised of royalties from Novartis of $86 million for Jakavi and $4 million for Tabrecta, and royalties from Lilly of $20 million for Olumiant. Jakavi and Olumiant royalties for the quarter were negatively impacted by FX headwinds, while Olumiant royalties were also impacted by a decrease in net product sales of Olumiant for use as a treatment for COVID-19, and a one-time deduction taken by Lilly related to securing additional intellectual property rights. Excluding the impact of one-time IP payments, COVID-19-related sales, and currency fluctuations, Olumiant royalties were essentially flat on a constant currency basis compared to the prior year period. Opzelura net product revenues for the quarter were $38 million, driven by robust demand and broadening payer access.

Christiana Stamoulis
Christiana Stamoulis
EVP and CFO at Incyte

As payers add Opzelura to formulary and the share of covered claims increases, we are continuing to see improvement in the gross to net discount rate. As Barry previously presented, the percentage of covered claims is increasing and the average quarterly gross to net discount is decreasing, as shown at the bottom of this slide. The fully loaded gross to net discount rate decreased from 81% in the second quarter of 2022 to 71% in the third quarter of this year. We expect the gross to net discount rate to continue to decline in the fourth quarter and reach a fully loaded steady-state exit rate of 40%-50% around year-end.

Christiana Stamoulis
Christiana Stamoulis
EVP and CFO at Incyte

Moving on to our operating expenses on a GAAP basis, ongoing R&D expenses of $351 million for the third quarter increased 6% from the prior year period, primarily due to continued investment in our late-stage development assets. The growth of SG&A expenses was primarily due to our investments related to the new dermatology commercial organization in the U.S and the related activities to support the launch of Opzelura in atopic dermatitis and vitiligo. Our collaboration loss for the quarter was $2 million, which represents our 50% share of the US net commercialization loss for Monjuvi. Moving on to our guidance for 2022. Based on the strong performance of Jakafi, we are tightening our guidance to a range of $2.38 billion-$2.4 billion.

Christiana Stamoulis
Christiana Stamoulis
EVP and CFO at Incyte

Given FX headwinds that we experienced year-to-date and expect to continue to experience in the fourth quarter, we are revising our other Hematology/Oncology revenue guidance to a range of $200-$210 million. Finally, we are reaffirming our R&D guidance, which now includes the $70 million upfront payment to Villaris anticipated in Q4, as well as its G&A guidance for the year. Operator, that concludes our prepared remarks. Please give your instructions, and open the call to Q&A.

Operator

Certainly, we'll now be conducting your 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.

Salveen Richter
Salveen Richter
Analyst at Goldman Sachs

Good morning, thanks for taking my question, and congratulations on the quarter. On Opzelura, can you help us think about the trajectory from here, just given the moving parts with free drug and gross to net and, you know, the uptake in the vitiligo population? Just maybe some color there would be helpful. Secondly, on Opzelura, just if you could help us understand the reimbursement dynamics that are playing out around writing a script and how onerous may be and what you're doing to kind of alleviate that burden on the part of the physician.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Sure, Salveen. This is Barry Flannely. So as far as the uptake in vitiligo goes, we're very happy. As you see from, you know, the prepared remarks, our dermatologists are excited about having this new therapy, first-ever therapy to repigment the skin in patients with vitiligo. We know that, as soon as the launch, which really we began in August, vitiligo scripts began to accelerate, and we know they'll continue to accelerate. As we've told you before, there's about 150,000-200,000 patients that are actively being treated for vitiligo now. There may be 1.3 million or more patients that have vitiligo that may choose to come back to their dermatologist now that they have an active therapy that can help them there. So we're very happy.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

We can't really break out the actual number of a percentage of vitiligo versus atopic dermatitis for you just at this point, just because we're uncertain about the actual number since many of the claims that we can look at really don't have diagnostic codes associated with them. Where we know that atopic dermatitis, for example, 'cause we have more data with that, is growing at least double digits quarter-over-quarter. We know that vitiligo is accelerating week after week, and we assume that's going to continue to occur. In terms of reimbursement and the dynamics there, of course, most patients have to go through a prior approval process, those patients that have commercial insurance.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

As we've said, the coverage has continued to get better and better over time, so that the vast majority of commercial patients do have access to therapy. As far as problems go, you know, prior approval is something that dermatologists deal with all of the time. Most of the AD utilization criteria do in fact include one or two step therapies that they have to go through, but dermatologists are used to doing that now. There may have been a little period of time where they were getting used to the prior approval process, the step therapy process. Certainly, since July first, it's really taken off. If there were barriers, they're mostly removed. Sometimes there is geographic barriers.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

One region of the country may be easy, another area of the country may be a little bit more difficult. With our own people that are out in the field, we try to help as best we can. We have an excellent market access team that can help the dermatologists and pharmacists go through the prior approval process. Most patients now and into the future should have little problem accessing Opzelura for both AD and vitiligo.

Salveen Richter
Salveen Richter
Analyst at Goldman Sachs

Thank you.

Operator

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

Tazeen Ahmad
Tazeen Ahmad
Analyst at Bank of America.

Hi. Good morning. Thanks for taking my question. Just wanted to follow up on gross to net. Where are you with the free drug program as of right now? Are you withdrawing that? You know, where do you expect that to be on a go-forward basis as you try to get closer to your 40%-50% growth to net for the year? Just to clarify, you're planning on exiting the year with 40%-50% growth to net. Is that correct? Thanks.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Tazeen Ahmad, this is Barry Flannely again. Yeah. Our growth to net, we do plan on having it get better, as we exit the year. The most important factor is, we are changing over from what we call a full buy-down program, where it was a very generous program at the beginning of the year, at the beginning of launch, where it was the very easiest thing to do for patients and for dermatologists. So that they could go to any pharmacy and, even when there was really limited coverage because of NDC blocks, they were able to access the drug because we were paying for the drug for full buy-down.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Now that we have increasing coverage and the vast majority of commercial patients do have access to the drug, we're switching over to a more typical bridging program where patients will be able to, when they have commercial insurance and they go through the prior approval process and for whatever reason they are in fact denied coverage, then they would end up getting through our bridging program, free drug at cost of goods for us so that that has a big impact on gross to net. But that number will continue to go down over time. As we've said, you know, 70% of the claims currently are going through and being paid, and that will increase as we go through the year and towards the end of the year.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

That will improve as well. We'll continue to improve our gross to net just through that, by switching our programs. Also we're continuing to increase coverage for those payers out there that we still have, you know, some work to do and will improve our gross to net by working with each of the plans to improve the utilization management criteria so that we are in the proper tiers where we should be, so that co-pays are lower. Those things will affect the gross to net and bring it down to the targeted range that we're looking for.

Operator

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

Jessica Fye
Jessica Fye
Managing Director and Equity Research Analyst at J.P. Morgan

Hey, guys. Good morning. Thanks so much for taking my questions. Couple more on Opzelura. You mentioned you're still working to increase coverage, and I know you gave the percent of covered claims. What's the current percent of lives covered today, and where do you want that to go? And then second, how good is your visibility on patient retention and, say, annual tubes per patient in each of these settings? Where does that stand now, and how do you see that evolving? Thank you.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Well, I think we said that, as of now, 70% of the claims are going through and being paid. The coverage really is approaching 84% of plans have 84% of patients that have commercial insurance have access through the contracts that we have signed. That's there. As far as patient retention is concerned, you know, because most of the scripts that come through are new Rxes or new to brand Rxes, in fact we'll need some more time and data to figure out exactly what the refill rate will ultimately be, both for AD and vitiligo.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

We're still projecting for AD, the average per year scripts will be two-three, tubes will be two-three, and the average for vitiligo around 10 tubes per year for vitiligo patients.

Jessica Fye
Jessica Fye
Managing Director and Equity Research Analyst at J.P. Morgan

Thank you.

Operator

Thank you. Next question is coming from Evan Seigerman from BMO Capital Markets. Your line is now live.

Analyst at BMO Capital Markets

Hi, guys. This is Keith on for Evan Seigerman. Thanks for taking our question. I guess first one, just looks like looking at the numbers by some measures. We could be seeing ex-US growth later in 2022 and then 2023, but we're seeing in this quarter lower royalties. Just wanna get a sense of how this, you're seeing this evolve in 2023 given regulatory progress. And then secondarily, if you could comment on the differences between the two oral PD-L1 inhibitors that are in parallel development and at what point would you decide to focus on one versus the other? Thanks.

Christiana Stamoulis
Christiana Stamoulis
EVP and CFO at Incyte

In terms of the royalties, as I indicated in the pre-prepared remarks, we have seen FX headwinds having an impact on our royalties given that Jakavi and Olumiant are very much ex-U.S. based on ex-U.S. sales. In addition to the FX impact, for Olumiant, we saw sales associated with COVID-19 treatment going away. As a result, there were no royalties associated to COVID-19 sales this past quarter. In addition to that, there was one-time payment associated with securing some additional IP, which was deducted from the royalties that we get for Olumiant. If you take out all those impacts, FX, COVID-19 related sales and the one-time IP payment, then we see royalties being pretty flat year-over-year.

Christiana Stamoulis
Christiana Stamoulis
EVP and CFO at Incyte

Going forward, we don't provide guidance on royalties, but we would expect for Olumiant to continue not to have any COVID-19 related royalties. Also the FX impact obviously is something that everybody has been experiencing and at this point we continue to see that impact continuing in the fourth quarter.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Keith, it's Steven. I'll answer your second question on the oral PD-L1 franchise. Just to say it's an extremely important franchise to us. You know, we're first in class here, and this is a very important program. The initial compound 550 was dropped because of the peripheral neuropathy signal, which we have not seen with either 280 or 318. 280 is slightly ahead of 318. There are differences structurally in terms of the chemical structure, and there are slight differences in terms of the PK. But for now, both continue to progress. Both are enrolling well, and we continue to accumulate, you know, efficacy and safety data that we want. You'll see next week at SITC poster presentations on both compounds.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

In terms of going forward, you know, sometime next year, we'll probably declare, you know, registration directed-wise, you know, which compound will be taken. All I can tell you at the present time, we'll keep both going. They both look good. We want that optionality given the importance of this program. Thanks.

Operator

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

Vikram Purohit
Vikram Purohit
Equity Analyst at Morgan Stanley

Hi. Good morning. Thanks for taking my question. Going back to dermatology, I wanted to ask a question on IQVIA capture ratios. You know, we recall that in 2Q 2022, you mentioned that there was an overstatement. I just wanted to see if there's any color available about how that's trended in 3Q versus 2Q. You mentioned that there could be some more irregularities going forward because of the transition from the full buydown program to the bridging program. I was wondering if you could comment on directionally how you think those irregularities might trend, if you think that's gonna be an overstatement or understatement, and to what degree you think the capture ratio might be irregular. I had a follow-up.

Christiana Stamoulis
Christiana Stamoulis
EVP and CFO at Incyte

Vikram, in Q2, we saw IQVIA overstating the level of Opzelura prescriptions, and that's something that we discussed last quarter. However, at that time, the trend in prescriptions was pretty representative of the actual trend. If you were to look at the trend lines, they were moving in parallel, the IQVIA line in parallel with actuals. What we have seen since is that the gap between the level of actual and IQVIA-reported scripts has been narrowing, but the trend line is no longer representative of the actual trend line. For example, when you look at the IQVIA data over the last few weeks of the quarter, you saw that it was flattening while this was not the case.

Christiana Stamoulis
Christiana Stamoulis
EVP and CFO at Incyte

As we now transition from the full buydown program to the more traditional free drug bridging program, there is actually a high level of uncertainty as to how IQVIA will be capturing the scripts. It's unclear whether that would result in an overestimation of scripts or an underestimation. As a result, we expect that for a period of time, at least through the fourth quarter, the IQVIA data would not be representative of actuals, both in terms of the level of scripts as well as the trend line.

Vikram Purohit
Vikram Purohit
Equity Analyst at Morgan Stanley

Okay. Understood. I had a follow-up on povorcitinib. You mentioned that a phase III study there is going to start in hidradenitis suppurativa by the end of the year. Could you just talk a little bit about what the study could look like from a design perspective and what patient population you think you would enroll in this program?

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Yeah. Vikram, it's Steven. Thank you for the question. You know, we just showed that data at EADV recently from our phase two proof of concept work. You know, there was a very good reaction from people in the field and opinion leaders in the field as to the potential for povorcitinib to treat patients with unmet need in HS. The, you know, the morbidity from the condition comes from abscesses, nodules and fistulas, and there's a large inflammatory component speaking to probably why, you know, JAK-STAT inhibition is important there. The regulatory endpoint that was established from the initial approval of the first drug in the setting is, as I mentioned in the prepared remarks, something called HiSCR.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

It's a composite endpoint that looks at abscesses and nodules and then the lack of further fistula and formation. It'll. You know, it's a endpoint that's captured at 16 weeks. We will go into this population with two doses. And you can see from our phase II work, you know, there was a dose response, generally speaking, but there wasn't a great differentiation between the two higher doses tested in the phase II setting. Both, you know, will be taken into phase III. Then otherwise, a standard endpoint from a HiSCR point of view. The current approved therapies don't seem to give patients the benefit they desire and aren't used a great deal in HS, so there's a lot of unmet medical needs here. Thanks.

Operator

Thank you. Next question is coming from Mara Goldstein from Mizuho Securities. Your line is now live.

Mara Goldstein
Mara Goldstein
Managing Director and Senior Biotechnology Research Analyst at Mizuho Securities

Great. Excuse me. Thanks so much for taking the question. I just wanted to understand a little bit better. On the gross to net exit rate, when you say around the end of the year, does that include the possibility of that figure slipping into the first quarter? And then secondarily, on the hidradenitis suppurativa, can you talk a little bit about the market and where povorcitinib could fit into that space right now?

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Mara, this is Barry. On the gross to net. We're saying that, you know, we'd get to the 40%-50% by the end of the year for all of the factors that-

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

I pointed out before about the transition to the bridging program, about the improved coverage, about our working with the payers to have better utilization management criteria, lowering tiers, lowering the copay. You know, what we didn't mention before is that, you know, you're picking up copays and, you're picking up deductibles, and deductibles go down as the year goes down. That improves that. I'll turn it over to Steven for the HS.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Yeah. Steven, thank you for the interest in the condition. It's the same thing we hear after we presented the data. It's estimated that if you look at moderate to severe HS in the United States, there are about 150,000 patients in terms of prevalence of the condition. You know, again, with a lot of unmet need that's not been currently addressed by the current approved therapy. The study will be focused on those moderate to severe, you know, and then will include a control arm plus two doses, as I mentioned earlier. You know, it's in preparation. We'd like to begin towards the end of this year, perhaps early next year. We've already demonstrated probably because of the excitement in the area and the unmet need, that these studies enroll really well.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

That's the population we go in after, and that's the current prevalence figure that we wanna address with this particular study. Thanks.

Mara Goldstein
Mara Goldstein
Managing Director and Senior Biotechnology Research Analyst at Mizuho Securities

Thank you.

Operator

Thank you. Next question is coming from Brian Abrahams from RBC Capital Markets. Your line is now live.

Leonid Timashev
Leonid Timashev
Analyst at RBC Capital Markets

Hey, this is Leon from Brian. Thanks for taking our question. I wanted to go back to Opzelura. So earlier you had mentioned that there were some challenges with scripts being abandoned and formularies or pharmacies not coding properly. I guess can you talk about how these have been resolved and if there's any challenges there that may continue to occur due to the free drug wind down program? And I guess do you have a sense of what percentage of patients that are actually on the free drug then go and start using the paid product and what you might need to do to get those claims higher? Then I guess sort of just related to that, gross to net aspect. I mean, do you have any visibility into the 2023 contracting?

Leonid Timashev
Leonid Timashev
Analyst at RBC Capital Markets

You know, given that inflation is fairly high, do you think you'll have to, you know, give back a lot of any potential price increases you might take into gross to net? Thanks.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Sure. Well, I'll try to answer your last question first. The contracts that anybody that the payers are working on now is for 2024. So it's 2023, there's no changes that will occur. As far as pro- I don't think I mentioned anything about abandoned prescriptions at pharmacies at all and not coding correctly. No, the only thing we said was that as we were changing over from mostly free drug to now mostly paid drug, dermatologists and pharmacies had to go through a prior approval process that before they were essentially just getting free drug because there's NDC blocks in place. So now moving forward, in fact, we should have less and less problems with prior approvals.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

They're used to any step therapies that the Utilization Management criteria has. Obviously, like I said before, we have, you know, our market access people that try to, you know, help any dermatology offices or pharmacies that are still having problems with that. We think we're through those challenges. There's always going to be prior approvals for drugs like these. That's part of our system that we're currently dealing with. I think we said before that, you know, most of the claims that are going through now are being paid, and that's only gonna get better as we move into the future.

Analyst

Got it. Thanks.

Operator

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

Charles Zu
Charles Zu
Analyst at Oppenheimer

Oh, hey, this is Charles Zhu on the line for Jay. Thanks for taking the question. Maybe one question on povorcitinib for HS. Can you just maybe talk about the unmet needs with Humira that you can maybe potentially address with povorcitinib? Also on the auremolimab you recently acquired, just if you can provide some color on how it can complement your vitiligo franchise, especially I think povorcitinib is also being studied for vitiligo and any other potential indications you are planning or you're thinking about with auremolimab. Thank you.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Yeah, Steven, thanks for the question again on HS. You know, just to be somewhat repetitive, these patients have a lot of morbidity, particularly in skin folds like the armpit, the axilla and other parts of the body in terms of abscesses and nodules that drain and cause a lot of morbidity to these patients. It looks like, you know, the currently approved TNF inhibitor doesn't fully address that unmet need. Again, you know, that speaks to the interest in new mechanisms of action here that look like, from our phase two proof of concept, may be addressed, you know, very well in terms of povorcitinib and a JAK inhibition. That's the reason, you know, we're excited about the data. That's the reason we wanna go fast into a phase III.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

There is you know a very good and in the slide in the prepared remarks response in terms of abscess and nodule formation. We'll be testing, as I said earlier, two doses there. You know it's about you know somewhere around 0.1% of the US population, but we estimate you know approximately upwards of 150,000 patients in US prevalence-wise, and maybe you know about 50,000 currently get treated.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

If you have a therapy that addresses that need, you know, then that'll be a really important thing to develop. In terms of auremolimab and its IL-15 receptor beta monoclonal antibody, as I said, you know, this addresses resident memory T cells in the skin, which are felt to cause the melanocytes not to produce the pigment and then to keep the disease, you know, present. By addressing this, and there's a very good preclinical model, you can potentially result in quote-unquote cure or at least prolonged responses in terms of repigmentation. We view this completely complementary.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Just to go over the entirety of our vitiligo studies, our first indication with Opzelura is in patients with 10% or below body surface area involvement and requires you know long-term treatment to get the effects that improve over time if you look at the data. If you look at the you know the 24-week data, it goes up by another you know 20% absolute points when you get to 50 weeks. With ruxolitinib, our vitiligo program is looking at patients with more severe vitiligo, more body surface area involvement, so 8% or above.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Again, you know, we have data there that's really encouraging, and we'll be presenting it early next year at a major meeting and then make, you know, go-forward decisions for povorcitinib there in terms of an oral therapy with a different therapeutic ratio. Just to round it out, now with the anti-IL-15 receptor beta antibody, we get the entirety, and we expect, you know, that will have activity on its own based on the preclinical models, and that's how we'll start testing it initially. You can imagine a world going forward where these therapies will complement one another and be used interchangeably depending on the disease and how it evolves. You know, we really want to address the unmet need here. We're excited about our vitiligo franchise and what it can do for patients who require and want repigmentation.

Charles Zu
Charles Zu
Analyst at Oppenheimer

Thanks.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Sorry, your last question. Other indications, I think it's pretty early, but, you know, the mechanism may be important in areas, like systemic sclerosis, sarcoid, et cetera, but it's very early in that journey. We'll just see how this program goes going forward. Thank you.

Charles Zu
Charles Zu
Analyst at Oppenheimer

Thank you so much.

Operator

Thank you. Next question is coming from Michael Schmidt from Guggenheim Securities. Your line is now live. Our next question is coming from Matt Phipps from William Blair. Your line is now live.

Matthew Phipps
Matthew Phipps
Analyst at William Blair

Okay, thanks for taking my questions. Congrats on this progress. I was wondering if you could help set the stage a little bit for the LIMBER updates coming soon. Maybe an idea of how many patients you'll have with the ALK2 or BET plus Jakafi combinations. Later this year, do you think you got enough data to make a determination on how you're moving either or both of those programs forward?

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Yeah. Hi, it's Steven. You know, the LIMBER program in terms of combinations is again key to how we wanna address unmet need in patients with myeloproliferative neoplasms. We're looking very much forward to the ASH meeting, and it'll be a really important meeting for us. In terms of each of the programs, ALK2 is a little more advanced than the BET program. You know, we've already showed data from a translational point of view that we get the hepcidin inhibition we want. The iron kinetics are favorable in terms of the way they move in, and we expect to follow with hemoglobin increases. I can't.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

You'll have to wait for the actual presentation at a meeting at the end of the year to show, you know, the entirety of the data, but we expect to show, you know, a reasonable number of patients with monotherapy and some in combination with ALK2. BET, as I said, is a little bit behind that. Given the abstract cutoff for the particular meeting and the poster presentation, there'll be a little less data quantitatively with BET at that meeting, you know, mostly in the monotherapy setting and not yet combination data to show given the cutoffs. In terms of decisions, you know, this will be in 2023 on where to go with these programs. Once we have, you know, established safe doses and schedules, we'll look at, you know, the particular populations that need to be addressed.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Of interest with ALK2 are obviously patients, you know, potentially with anemia, given its mechanism of action, but it could be beyond because it will result in the ability to maintain Rux dose intensity. With BET, you know, we'll see also given the competitive space where that is on where to go in terms of first-line and suboptimal populations. Those decisions, to answer your questions, will be in 2023. Thanks.

Operator

Thank you. Our next question today is coming from Michael Schmidt from Guggenheim. Your line is now live.

Analyst

Hey, this is Kelsey on for Michael. Apologies for getting disconnected there. Thank you for taking our question. I guess how do you kind of anticipate the MF market landscape evolving in the coming years with the recent approval of Vonjo and potential approval of momelotinib next year? And are you seeing a change in patient new starts, particularly those with low platelets given Vonjo is now available in the U.S.? Thanks so much.

Steven Stein
Steven Stein
EVP and Chief Medical Officer at Incyte

Sure, Kelsey. In myelofibrosis, as you know, Jakavi has been approved now for about 11 years. In myelofibrosis, two other JAK inhibitors, pacritinib and fedratinib have been approved.Fedratinib from BMS, as you probably know, really has been flat to declining, mostly used in the second-line setting, if used at all. As far as Vonjo is concerned, at least as the data that we look at.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

We don't really see much Vonjo usage, but it must be being used in the second line setting, and that's the way that it seems to be positioned for those patients that have low platelets. Evolving over time, I mean, obviously, there could be some combination data in the future with other products. For momelotinib, we'll have to wait and see what the label says. You know, because of the survival advantage that Jakafi has, because of the unprecedented symptom improvement that Jakafi has with low GI toxicity, we think it'll be the standard of care for a long time. We do not see any changes or noticeable changes at all in the duration of therapy for patients.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

We, as I said before, that we continue to grow new patients in MF after all of this time. We grew 8% in terms of new patient growth for myelofibrosis and, you know, we continue to position Jakafi as first line, and we believe it should be started as soon as possible before patients have a possibility of progressing and getting worse. We're confident in our position. We'll have to wait and see what momelotinib label says, but we think that Jakafi will still be the standard of care because of its efficacy and safety profile.

Operator

Thank you. Next question is coming from Eva Privitera from Cowen. Your line is now live.

Eva Privitera
Eva Privitera
Analyst at Cowen

Thanks for taking our questions. Can you give an update on the progress made towards establishing utilization management criteria in vitiligo? Approximately what percentage of plans now have UMs in place?

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Well, because most of the contracts were that we established for AD carried over to vitiligo. Now, some of the vitiligo utilization criteria that's in place, there was vitiligo criteria for maybe half of the plans throughout the United States before Opzelura was approved for vitiligo and has only increased over time. Some of them. Some of the utilization criteria that we've seen have Opzelura as first line. Some have one step, some have two steps.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Now, we'll continue to work with each and every one of those plans every single day to optimize utilization criteria to actually reflect the clinical data, because in fact, there's no reason to use any step therapy for vitiligo for these patients that have vitiligo because the clinical data 'cause it's the only drug approved, first and only drug approved for that condition. In a way, we'll continue to see the utilization criteria only get better because the drug is so good and it should be used in the first line setting when patients come in and want to be treated for their vitiligo.

Eva Privitera
Eva Privitera
Analyst at Cowen

Thank you for that. A quick follow-up. When do you expect to start running DTC ads for vitiligo?

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Well, we're already doing DTC for vitiligo in a variety of locations, of course, through social media, things like Facebook, Instagram and so forth, in terms of internet search optimization. If you go looking for vitiligo, you'll find Opzelura. You go looking for Opzelura, you'll find that vitiligo is there. We also have patient webinars, and we work with patient advocacy groups. The DTC is going on. If what you mean by television commercials, as you know, we're running TV advertisements both linear and nonlinear, so connected TV and non-connected TV for atopic dermatitis now. The vitiligo commercials for, again, for connected and non-connected TV will start either in December or January.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

We'll have to figure that out yet, just for what's the best placement, what's the best timing for these ads to have the most impact.

Operator

Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from Andrew Berens from SVB Securities. Your line is now live.

Andrew Berens
Analyst at SVB Securities

Hi. Thanks, guys. I'm sorry if I missed this. I've been jumping from call to call, but I was wondering if you could give some color on the inventory levels. When I do a back of the envelope calculation, it appears that may have gone up about $3 million based on the numbers you've given. Also just wondering if you guys are still confident in the $1.5 billion guidance for Opzelura in AD in the U.S. alone. Thanks.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

So as far as inventory levels go, Andrew, I'm not really sure what you mean. I assume you mean for Opzelura. I certainly don't see any. Our inventory levels have maintained about a two-week period of time. It's actually a little lower than we really thought it was going to be when we first got into this endeavor. As far as the guidance goes, we're confident that, you know, with the almost 30 million patients in the United States that have atopic dermatitis and the 5.5 million that are actively being treated now, that $1.5 billion guidance is certainly within our range, our possibilities.

Andrew Berens
Analyst at SVB Securities

Okay. Thank you.

Operator

Thank you. Next question is comin g from Gavin Clark-Gartner from Evercore. Your line is now live.

Gavin Clark-Gartner
Gavin Clark-Gartner
Managing Director at Evercore

Hey, thanks for taking the question. I just wanted to confirm something I heard earlier. Did you mention that patients are using two-three tubes per year for Opzelura in atopic derm, like in the real world setting?

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Gavin, what I said was that on average, over time, we'll see that we believe that two-three tubes per year per patient with atopic dermatitis is what it'll work out to be.

Gavin Clark-Gartner
Gavin Clark-Gartner
Managing Director at Evercore

Okay. Got it. Yes, I mean, what's driving the difference from the three-four tubes that you've been guiding towards previously?

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

Well, quite frankly, we'll find out as we move forward into the coming years because it takes time for, you know, refills to be clear. Plus, as I was sort of alluding to before, sometimes you can't tell a difference between a new to brand prescription, meaning that's the first time the patient got the drug, and a new prescription that might be for a patient that already had it, but it came from either a different prescriber, went through a different pharmacy, so sometimes those are hard to match up. Over time, we'll see whether it's two-three, three-four. Also the drug is great and it works really well.

Barry Flannelly
Barry Flannelly
EVP and General Manager, North America at Incyte

I think that if there's any difference, it's because patients come in, they get the drug, it clears their skin up, clears their itch up. We will see over time what the real usage is going to be. Like I said, we really have to sort out which is truly a new patient and which is a patient that's just getting a new script that may have gotten a different script three, four months ago.

Operator

Thank you. Next question is coming from Srikripa Devarakonda from Truist. Your line is now live.

Kripa Devarakonda
Kripa Devarakonda
VP at Truist Securities

Guys, thank you so much for taking my questions. A question on vitiligo. Now that you've launched and you have an early idea of how it's being received and the awareness among doctors and maybe even patients, when do you think you'll be able to provide how big of an opportunity this could be, you know, in line with the $1.5 billion opportunity you talked about AD in the US? You have $3 billion in cash, you know, as a competitive landscape in myelofibrosis with all of the different combinations that are currently under investigation evolves, any changes in your thinking around capital allocation and the size? You know, you did the Villaris acquisition recently, but the size of a deal. Thank you.

Christiana Stamoulis
Christiana Stamoulis
EVP and CFO at Incyte

Hi, Kripa Devarakonda. In terms of vitiligo, as Barry Flannelly indicated, we are very pleased with the launch and the initial progress, but we are very early in the launch, and this is a very different market than AD. It's not an established market. You have only a small percent of the patients that have been diagnosed with vitiligo currently seeking treatment. It's around 10%. You have a very big part of the patient population that is inactive. We want to wait to see a few quarters of uptake to get a better understanding not only of the currently active patients seeking treatment and how quickly do they come into the therapy, but also how quickly the inactive population gets activated and the uptake there before we provide any type of guidance around vitiligo.

Christiana Stamoulis
Christiana Stamoulis
EVP and CFO at Incyte

In terms of your second question on BD, there is no change in our thinking in terms of the type of transactions and the objective that we have with BD. We are looking to bring in assets that fit well with our current areas of expertise and can leverage our capabilities, can leverage our infrastructure and can add to our revenues and diversification in the second half of the decade. Villaris, it fits very nicely with that objective. It is an earlier stage and smaller deal, but we continue to actively look for others. I would say bolt-ons is the nature of acquisitions that we are primarily focusing on.

Operator

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.

Christine Chiou
Christine Chiou
Head of Investor Relations at Incyte

Thank you all for participating in the call today and for your questions. The IR team will be available for the rest of the day for follow-up. Thank you and goodbye.

Operator

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

Executives
    • Christine Chiou
      Christine Chiou
      Head of Investor Relations
    • Hervé Hoppenot
      Hervé Hoppenot
      CEO
    • Barry Flannelly
      Barry Flannelly
      EVP and General Manager, North America
    • Steven Stein
      Steven Stein
      EVP and Chief Medical Officer
    • Christiana Stamoulis
      Christiana Stamoulis
      EVP and CFO
Analysts
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