On August 1, 2017 Incyte Corporation (Nasdaq: INCY) reported 2017 second-quarter 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 and Olumiant (baricitinib) by Lilly (Press release, Incyte, AUG 1, 2017, View Source [SID1234519968]).

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Recent highlights also include the initiation of two pivotal studies (ruxolitinib for treatment-refractory chronic graft versus host disease (GVHD); itacitinib for steroid-naïve acute GVHD), and the presentation of multiple data sets at ASCO (Free ASCO Whitepaper) 2017 supporting the expansion of the pivotal trial program for epacadostat.

"Revenue growth from Jakafi and Iclusig continues to be very robust, driven by strong demand, and we have also made significant progress across our clinical portfolio. As we look forward to the second half of 2017, we anticipate the publication of important data from our development candidates, as well as the initiation of multiple additional pivotal combination studies with epacadostat," stated Hervé Hoppenot, Chief Executive Officer, Incyte. "Investment in innovation has created significant value for Incyte, our stakeholders and for the patients that our products treat. With strong revenue growth, a broad clinical development portfolio, comprehensive drug discovery capabilities and an expanded geographic footprint which now includes the U.S., Europe and Japan, we believe that we are well positioned for long-term value creation."

Portfolio Update
Cancer – Targeted Therapies
In July, the latest National Comprehensive Cancer Network (NCCN) Clinical Practice Guidelines in Oncology for myeloproliferative neoplasms (MPNs) were published, and now include Jakafi as a recommended treatment for patients with myelofibrosis and patients with polycythemia vera who have had an inadequate response to first-line therapies, such as hydroxyurea.

In June, REACH3, a Phase 3 trial of ruxolitinib as a treatment for patients with steroid-refractory chronic GVHD, was initiated. REACH3 is being conducted in collaboration with Novartis.
RESET-272, the double-blind, randomized pivotal trial of ruxolitinib versus anagrelide for the treatment of patients with essential thrombocythemia who are resistant to or intolerant of hydroxyurea, is now open for enrollment.
GRAVITAS-301, the Phase 3 trial of itacitinib, Incyte’s selective JAK1 inhibitor, in patients with treatment-naïve acute GVHD, began dosing in July.

Following a review of the clinical profiles of Incyte’s two BRD inhibitors, INCB54329 and INCB57643, including data expected to be presented at medical meetings in the second half of 2017, the Company intends to focus future development efforts on INCB57643.
In June, Incyte initiated the Phase 1/2 dose-escalation trial of its FGFR4 inhibitor, INCB62079, in patients with hepatocellular carcinoma.

Indication Status Update
Ruxolitinib (JAK1/JAK2) Steroid-refractory acute GVHD Pivotal Phase 2 (REACH1) and Phase 3 (REACH2)
Ruxolitinib (JAK1/JAK2) Steroid-refractory chronic GVHD Phase 3 (REACH3)
Ruxolitinib (JAK1/JAK2) Essential thrombocythemia Pivotal Phase 2 (RESET-272) open for enrollment
Itacitinib (JAK1) Treatment-naïve acute GVHD Phase 3 (GRAVITAS-301)
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)
INCB54828 (FGFR1/2/3) Bladder cancer, cholangiocarcinoma; 8p11 MPNs
Phase 2 (FIGHT-201, FIGHT-202, FIGHT-203)
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

Cancer – Immune Therapies
At ASCO (Free ASCO Whitepaper) 2017 in June, new data from the ECHO-202 and ECHO-204 Phase 1/2 trials of epacadostat plus PD-1 inhibitors were presented in multiple tumor types. These data formed the basis of the decisions to proceed into multiple Phase 3 trials, in collaboration with each of Merck and Bristol-Myers Squibb, respectively, as announced earlier this year.

In June 2017, Incyte and Roche/Genentech decided to close the ECHO-110 trial of epacadostat plus atezolizumab to further enrollment because of slow study recruitment.

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

Notes:
1) INCB01158 co-developed with Calithera
2) INCSHR1210 licensed from Hengrui
3) INCAGN1876 & INCAGN1949 from discovery alliance with Agenus

Non-oncology
In June, Incyte initiated a Phase 2 trial of topical ruxolitinib for the treatment of patients with vitiligo.

Indication Status Update
Topical ruxolitinib (JAK1/JAK2) Atopic dermatitis, vitiligo Phase 2

Partnered
In July 2017, Lilly and Incyte announced that Japan’s Ministry of Health, Labor and Welfare granted marketing approval for Olumiant for the treatment of rheumatoid arthritis (including the prevention of structural injury of joints) in patients with inadequate response to standard-of-care therapies.

In July 2017, Lilly and Incyte announced that a resubmission to the U.S. Food and Drug Administration (FDA) for the New Drug Application (NDA) for baricitinib will be delayed for a period anticipated to be a minimum of 18 months. The companies will be further discussing the path forward with the agency and evaluating options for resubmission, including the potential for an additional clinical study, as requested by the FDA.

Novartis has stated that it anticipates submitting an NDA for capmatinib, Incyte’s potent and selective c-MET inhibitor, in 2018.

Indication Status Update
Baricitinib (JAK1/JAK2)1 Rheumatoid arthritis Approved in Europe and Japan; CRL issued by FDA
Baricitinib (JAK1/JAK2)1 Psoriatic arthritis Lilly no longer expects Phase 3 to begin in 2017
Baricitinib (JAK1/JAK2)1 Atopic dermatitis, systemic lupus erythematosus Phase 2
Capmatinib (c-MET)2 Non-small cell lung cancer, liver cancer Phase 2 in EGFR wild-type ALK negative NSCLC patients with c-MET amplification and mutation

Notes:
1) Baricitinib licensed to Lilly
2) Capmatinib licensed to Novartis

Corporate Update
In June 2017, Lothar Finke, M.D. joined the Incyte Executive Management team as Head of Development Japan and General Manager, Japan. Dr. Finke was most recently the Head of Oncology Development and Medical Affairs Japan for Novartis where he was responsible for leading an integrated organization to support oncology development. He has significant experience developing drugs in all classes of oncology including immuno-oncology, targeted therapies and cell therapies in the EU, U.S., Canada, and Japan.

2017 Second-Quarter Financial Results
Revenues For the quarter ended June 30, 2017, net product revenues of Jakafi were $276 million as compared to $208 million for the same period in 2016, representing 33 percent growth. For the six months ended June 30, 2017, net product revenues of Jakafi were $527 million as compared to $391 million for the same period in 2016, representing 35 percent growth. For the quarter ended June 30, 2017, net product revenues of Iclusig were $16 million as compared to $4 million for the same period in 2016. For the six months ended June 30, 2017, net product revenues of Iclusig were $29 million as compared to $4 million for the same period in 20161.

For the quarter and six months ended June 30, 2017, product royalties from sales of Jakavi, which has been out-licensed to Novartis outside of the United States, were $34 million and $63 million, respectively, as compared to $26 million and $48 million for the same periods in 2016. For the quarter and six months ended June 30, 2017, product royalties from sales of Olumiant outside of the United States received from Lilly were $1 million.

For the quarter and six months ended June 30, 2017, contract revenues were $0 million and $90 million, respectively, as compared to $8 million and $66 million for the same periods in 2016. These contract revenues relate to milestone payments earned.

For the quarter ended June 30, 2017, total revenues were $326 million as compared to $246 million for the same period in 2016. For the six months ended June 30, 2017, total revenues were $711 million as compared to $510 million for the same period in 2016.

Year Over Year Revenue Growth
(in thousands, unaudited)

Three Months Ended Six Months Ended
June 30, % June 30, %
2017 2016 Change 2017 2016 Change
Revenues:
Jakafi net product revenue $ 276,038 $ 208,126 33% $ 527,115 $ 391,393 35%
Iclusig net product revenue 15,629 3,990 - 29,359 3,990 -
Product royalty revenues 34,769 25,958 34% 63,990 47,860 34%
Contract revenues - 8,214 - 90,000 66,429 -
Other revenues 8 - - 62 80 -
Total revenues $ 326,444 $ 246,288 33% $ 710,526 $ 509,752 39%

Research and development expenses Research and development expenses for the quarter and six months ended June 30, 2017 were $202 million and $610 million, respectively, as compared to $120 million and $277 million for the same periods in 2016. Included in research and development expenses for the quarter and six months ended June 30, 2017 were non-cash expenses related to equity awards to our employees of $23 million and $44 million, respectively. The increase in research and development expenses was primarily due to the expansion of the Company’s clinical portfolio as well as upfront and milestone expenses of $209 million related to our collaboration and license agreements with Agenus, Calithera and Merus.

Selling, general and administrative expenses Selling, general and administrative expenses for the quarter and six months ended June 30, 2017 were $90 million and $177 million, respectively, as compared to $67 million and $131 million for the same periods in 2016. Included in selling, general and administrative expenses for the quarter and six months ended June 30, 2017 were non-cash expenses related to equity awards to our employees of $11 million and $20 million, respectively. Increased selling, general and administrative expenses were 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 for the quarter and six months ended June 30, 2017 were $7 million and $14 million, respectively, as compared to $2 million for the same periods in 2016. The change in fair value of acquisition-related contingent consideration 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 investments Unrealized loss on long term investments for the quarter and six months ended June 30, 2017 were $20 million and $25 million, respectively, as compared to $1 million and $4 million for the same periods in 2016. The unrealized loss on long term investments for the quarter and six months ended June 30, 2017 represents the fair market value adjustments of the Company’s investments in Agenus and Merus.

Expense related to senior note conversions Expense related to senior note conversions for the quarter and six months ended June 30, 2017 were $1 million and $55 million, respectively, related to the conversions of certain of our 2018 and 2020 convertible senior notes.

Net income (loss) Net loss for the quarter ended June 30, 2017 was $12 million, or $0.06 per basic and diluted share, as compared to net income of $34 million, or $0.18 per basic and diluted share for the same period in 2016. Net loss for the six months ended June 30, 2017 was $200 million, or $1.00 per basic and diluted share, as compared to net income of $58 million, or $0.31 per basic and $0.30 per diluted share for the same period in 2016.
Cash, cash equivalents and marketable securities position As of June 30, 2017, cash, cash equivalents and marketable securities totaled $609 million as compared to $809 million as of December 31, 2016.
2017 Financial Guidance
The Company has updated its full year 2017 financial guidance, as detailed below.

Current Previous
Jakafi net product revenues $1,090-$1,120 million $1,020-$1,070 million
Iclusig net product revenues $60-$65 million Unchanged
Research and development expenses* $1,050-$1,150 million $1,000-$1,100 million
Selling, general and administrative expenses $340-$360 million Unchanged
Change in fair value of acquisition-related contingent consideration $30-$35 million Unchanged
* Includes upfront and milestone expenses of $209 million related to the amended Agenus collaboration, and the Merus and Calithera collaborations

About Jakafi (ruxolitinib)
Jakafi is a first-in-class JAK1/JAK2 inhibitor approved by the U.S. Food and Drug Administration for treatment of people with polycythemia vera (PV) who have had an inadequate response to or are intolerant of hydroxyurea. Jakafi is also indicated for treatment of people with intermediate or high-risk myelofibrosis (MF), including primary MF, post–polycythemia vera MF, and post–essential thrombocythemia MF.
Jakafi is marketed by Incyte in the United States and by Novartis as Jakavi (ruxolitinib) outside the United States.

About Iclusig (ponatinib) tablets
Iclusig targets not only native BCR-ABL but also its isoforms that carry mutations that confer resistance to treatment, including the T315I mutation, which has been associated with resistance to other approved TKIs.

In the EU, Iclusig is approved for the treatment of adult patients with chronic phase, accelerated phase or blast phase chronic myeloid leukemia (CML) who are resistant to dasatinib or nilotinib; who are intolerant to dasatinib or nilotinib and for whom subsequent treatment with imatinib is not clinically appropriate; or who have the T315I mutation, or the treatment of adult patients with Philadelphia-chromosome positive acute lymphoblastic leukemia (Ph+ ALL) who are resistant to dasatinib; who are intolerant to dasatinib and for whom subsequent treatment with imatinib is not clinically appropriate; or who have the T315I mutation.

Incyte has an exclusive license from ARIAD Pharmaceuticals, Inc, since acquired by Takeda Pharmaceutical Company Limited, to develop and commercialize Iclusig in the European Union and 22 other countries, including Switzerland, Norway, Turkey, Israel and Russia.