Incyte Corp

NASDAQ:INCY

Earnings Call Transcript 2019-Q2

[Operator]

Greetings, and welcome to the Incyte Corporation's Second Quarter 2019 Financial Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mike Booth, Head of Investor Relations. Thank you, sir. You may begin.

[Mike Booth, Investor Relations]

Thank you, Jessie. Good morning, and welcome to Incyte's second quarter 2019 earnings conference call and webcast. The slides used today are available for download on the investors section of incyte.com. I am joined on the call today by Hervé, Barry, Steven and Christiana, who will deliver our prepared remarks and by Dash who will join us for the Q&A session.

During the question-and-answer session, I ask that you limit yourself to one question and if needed one followup. This will enable as many of you to ask questions as time allows.

Before we begin however, I'd like to remind you that some of the statements made during the call today are forward-looking statements, including statements regarding our expectations for 2019 guidance, the commercialization of our products and our development plans for the compounds in our pipeline, as well as the development plans of our collaboration partners. These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our 10-Q for the quarter ended March 31, 2019, and from time to time, in our other SEC documents.

We'll now begin the call with Hervé.

[Hervé Hoppenot, Chairman, President, and Chief Executive Officer]

Thank you, Mike and good morning, everyone. So at the beginning of 2019 we set out to achieve a series of specific goals and in the first half of the year we have already executed on a number of those commercial and clinical objectives. Q2 2019 was another strong quarter with 21% growth in total products and royalty revenue when compared to the same period last year. Sales of Jakafi grew by 18%, Iclusig revenues increased by 23% and Jakavi and Olumiant's royalties collectively demonstrated growth of 36%.

In May, we announced that the FDA granted full approval of Jakafi for use in patients with steroid refractory acute GVHD. Our team was pretty alert and we launched Jakafi in this new indication immediately. There were two additional important updates within our development portfolio during the second quarter. Capmatinib data in patients with non-small cell lung cancer harboring MET exon-14 skipping mutations were presented at ASCO and Novartis continues to guide to an NDA submission in this indication in the second half of this year. If approved, Incyte would become eligible for 12% to 14% royalties on global net sales by Novartis and could receive over $500 million in potential milestones over time.

Following our prior announcement of the Phase 2 trial of ruxolitinib cream in vitiligo has achieved its primary endpoint. The data was presented at the World Congress of Dermatology. The data was well received and we believe ruxolitinib cream has the potential to be transformative for the treatment of the millions of patients with vitiligo.

We are preparing for Phase 3 development in this indication which we expect to initiate by the end of this year. We therefore begin the second half of the year with strong momentum and we look forward to reporting on several other important clinical and regulatory milestones in the coming months.

One of Incyte's core strengths is our discovery engine. Several years ago, in order to capitalize on this we tasked a separate group of scientists to review potential uses for our molecular target outside of oncology. These efforts are now bearing fruit. In addition to our portfolio in hematology and oncology, we now have a separate and growing clinical portfolio in inflammation and autoimmunity indication.

As you know, we are currently running proof of concept trial across several molecules and indication and the two most advanced products within the IAI Group are the evaluation of ruxolitinib cream in atopic dermatitis and vitiligo. The data to date have been comparing in both indications and we look forward to future updates from ruxolitinib cream and as well as our proof of concept IAI program.

We believe that adding this exciting new potential growth driver on top of our well established oncology franchise could further accelerate and diversify our revenue line and better position Incyte for sustainable long term growth.

I will now turn the call over to Barry for an update on Jakafi.

[Barry Flannelly, Executive Vice President, General Manager, US]

Thank you, Hervé and good morning everyone. Patient demand for Jakafi continues to be strong. In the second quarter demand grew by 14% year-over-year while net sales grew by 18%. As a result of these encouraging results and given the early data from the launch in GVHD, we have increased the lower end of our guidance. Our full-year 2019 guidance for net sales of Jakafi is now $1.61 billion to $1.65 billion.

We are encouraged by the initial interest and excitement from healthcare professionals at bone morrow transplant centers across the nation as they learn about the approval of Jakafi for the treatment of patients with steroid-refractory GVHD. The data supporting the approval has also been very well received. It is early to fully quantify the impact of GVHD launch and overall Jakafi performance, but indicators from BMT centers are good and we are seeing an increase in new GVHD patients on Jakafi.

For example, we have previously outlined the constrained nature of this opportunity which exists at a relatively small number of bone marrow transplant centers in the U.S. and our initial data indicate that over 80% of these top-tier centers have purchased Jakafi since FDA approval. Insurance coverage has also been encouraging and we are not aware of documented denials to date. And we look forward to keeping you updated on our progress over the coming quarters.

I'll now turn the call over to Steven for the clinical update.

[Steven Stein, Executive Vice President, Chief Medical Officer]

Thanks, Barry and good morning everyone. Incyte is currently running six key late-stage development projects. These have the potential to treat a significant number of patients across numerous indications. Ultimately, these projects aim to transform Incyte into a company with multiple approved products in the United States, Europe and Japan over the next several years. We have made good progress over the last few months and we remain on track to achieve the clinical milestones that we have previously laid out.

I'd now like to touch on two key data presentations made during the second quarter. In June, the Phase 2 data of ruxolitinib cream in patients with vitiligo were presented at the World Congress of Dermatology in Milan. As previously announced the trial achieved its primary endpoint of a facial VASI50 versus vehicle at week 24. Here you can see the improvements by dose over the course of the trial. The highest facial VASI50 scores were achieved using 1.5% ruxolitinib cream daily and twice daily. Importantly, ruxolitinib cream was well tolerated and was not associated with any clinically significant application site reactions or serious treatment related adverse events.

As you know, the facial VASI75 represents a more complete clinical response in patients with vitiligo and this is why we have chosen this as a primary endpoint in our global Phase 3 development plan. On this slide you will see the facial VASI75 data from our Phase 2 study. These data show a clear dose response and at the 1.5% dose of ruxolitinib cream used twice per day was the most effective in treating vitiligo lesions. Our plans for Phase 3 development are moving forward and we continue to expect the initiation of pivotal development before the end of this calendar year.

We intend to initiate two Phase 3 trials with 300 patients in each. The trials will evaluate ruxolitinib cream at a dose of 1.5% twice a day versus vehicle and our plan is to use facial VASI75 at 24 weeks as a primary endpoint of both studies. Note that at this dosing schedule in the Phase 2 trial 30% of patients treated with ruxolitinib cream achieved a facial VASI75 score whereas none of those patients treated with vehicle achieved a facial VASI75.

We are hopeful that ruxolitinib cream will be the first vitiligo therapy approved by the FDA and that it may provide these patients with a meaningful improvement in their disease. The vitiligo data are very important to Incyte. Ruxolitinib cream is a first-in-class agent with a potentially disease modifying mechanism of action in a large indication with a clear unmet need. The transformative effect of ruxolitinib cream could have in the treatment of vitiligo has therefore placed even greater momentum behind our IAI franchise and development efforts.

Let's move on to one of our out-licensed molecules, capmatinib, which has been developed by Novartis. At ASCO in June, updated data in patients with non-small-cell lung cancer harboring MET exon-14 skipping mutations from the GEOMETRY trail were presented. These data showed that almost all patients experienced reduction in tumor volume when treated with capmatinib and by RECIST these data showed overall response rate of 68% in first line patients and 41% in second and third line patients.

The data also showed a manageable safety profile. As a reminder, capmatinib was granted Breakthrough Therapy designation and then Novartis expect to file an NDA by the end of this calendar year.

I'll end my update by reminding you about the expected key news flow events during 2019. We continue to expect to submit the NDA of pemigatinib in second line cholangiocarcinoma before the end of this year. We are also planning for the presentation of updated data on the FIGHT-202 trial which will form the basis for the NDA submission later this year. We have multiple Phase 3 trials running across various types of graft-versus-host disease and expected to deliver top line results by the end of this calendar year. REACH2 is evaluating ruxolitinib in patients with steroid-refractory acute graft-versus-host disease and REACH3 is studying ruxolitinib in patients with steroid-refractory chronic graft-versus-host disease. Both of these trials are being conduction in collaboration with Novartis.

GRAVITAS-301 is evaluating itacitinib, our wholly-owned JAK1selective inhibitor in patients who are treatment naïve acute graft versus host disease. If GRAVITAS-301 is positive, we would expect to seek approval for itacitinib in the United States, Europe and Japan based on these data. 2019 has been an excellent year of research and development execution thus far and we look forward to keeping you updated on our progress.

With that, I'd like to turn the call over to Christiana for a financial update.

[Christiana Stamoulis]

Thanks Steven, and good morning, everyone. The financial update this morning will include GAAP and non-GAAP numbers. For a full reconciliation of GAAP to non-GAAP, please refer to Slide 23 and 24 in the back half section of the deck and to the press release we issued this morning.

Turning now to Slide 17, our second quarter results reflect continued strong performance across all products with total product and royalty revenue of $510 million representing an increase of 21% over the second quarter of 2018. This is comprised of $410 million in Jakafi and $24 million in Iclusig net product revenues, $57 million in Jakafi royalties from Novartis and $19 million in Olumiant royalties from Lilly. We also recognized $20 million in contract revenues under our collaboration agreement with Innovent resulting in total revenues for the quarter of $530 million.

Our total costs and expenses for the quarter on a non-GAAP basis of $379 million decreased 3% from the prior year quarter. Ongoing R&D expense for the quarter was $237 million on a non-GAAP basis representing a decrease of 7% from the prior year period. This decrease reflects the impact of our decision to stop co-funding baricitinib development and lower costs related to the epacadostat program partially offset by costs to advance our other internal development programs.

SG&A expense for the quarter of $93 million on a non-GAAP basis decreased 3% from the prior year quarter. This decrease reflects the timing of certain commercial activities which this year are expected to take place in the second half.

Moving to our guidance for 2019, we are increasing the low end of our Jakafi revenue guidance from $1.58 billion to $1.61 billion based on our results in the first half of the year. We are reiterating both R&D and SG&A expense guidance as we continue to invest in both our commercial efforts and in our clinical development portfolio.

I will now turn the call back to Hervé.

[Hervé Hoppenot, Chairman, President, and Chief Executive Officer]

Thank you, Christiana. So our next slide outlines our progress to date in 2019 as well as our remaining key news flow events we expect during 2019 including news from our partners. With this literally exciting latest program we are taking important steps toward our strategic goals of further diversifying the organization and driving sustainable revenue growth.

That concludes our prepared remarks and we are now happy to take your questions. Operator, please give your instructions and open the call for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of Cory Kasimov with JP Morgan. Please proceed with your question.

[Cory Kasimov, JP Morgan]

Hey, great. Good morning and thanks for taking my questions and also for such efficient scripted comments. I always appreciate it. So my first question is regarding GVHD. Can you just help us better understand the key gating items and levers that we need to think about with Jakafi's launch in this setting and should we be looking at this as a growth driver for the company in the near-term as more of a place setter for itacitinib? And then I have one followup.

[Barry Flannelly, Executive Vice President, General Manager, US]

Sure Cory, this is Barry. Well as far as gating levers go, you know one of the most important things is access and we haven’t had any problem with access at all. You know, it's early, but we really think the launch is going very well, both -- we have some qualitative and quantitative measures. Qualitatively we know that even centers that have been using Jakafi for GVHD before they might have been using it third or fourth line or even later, and now they've moved it up to second line.

Quantitatively, we know that orders from the 150 or so bone marrow transplant centers have increased. We don’t always know exactly why they are ordering it, whether it is for MSPD [ph] or GVHD, but we can assume that most of the new orders are actually all for GVHD. We know that specialty distributor orders are up and those are generally as opposed to specialty pharmacy, specialty distributors shipped to hospitals and we know that those are up pretty substantially. We really think that with this year and I think I've said this before, of our top line net sales GVHD will account for about $80 million and that's spontaneous use as well as use once we have the approval.

Is it a growth driver? Pretty sure, it's a growth driver. As we get more data and new indications for Jakafi, but also ultimately for itacitinib as we gain approval in the first-line setting in both acute and chronic GVHD.

[Cory Kasimov, JP Morgan]

Okay, that's very helpful Barry. And then my followup probably for Hervé, but I'd be interesting in getting your broader thoughts on and healthcare reform and all the noise that's out there, and to the extent there's something that's enacted that incorporates Part D, can you just remind us of your potential exposure there? Thanks.

[Hervé Hoppenot, Chairman, President, and Chief Executive Officer]

No, thanks for the question, and usually it's top of mind for many people, it's a situation Medicare sales for Jakafi in the U.S. I think we said are around 50% of our total business in the U.S. for Jakafi today. So that gives you an idea of the size of our Medicare exposure. The way we look at it is, first we know that there are a number of patients in the U.S. on Medicare who are not taking Jakafi because of the co-pays that they have to contribute today.

So the goal for us of any kind of reform is first to reduce the co-pay because it will be good for us, but also because of humanitarian reason I think it's one of the effects of current system in the U.S. is that there are number of people who cannot afford the co-pays the way it is defined today. So one of the good thing of what we have seen in the draft of the Senate document is a significant reduction in the co-pay for patients. It is very difficult for us to quantify what kind of effect it would have on the number of patients who could now afford to be treated with a product like Jakafi.

And it's not just Jakafi, I mean it's really touching all cancer treatment in general and we think it will be a huge positive for these patients as the co-pay is reduced. And frankly we wish it would be further reduced. I mean, the counterpart of that would be for us the contribution to the catastrophic coverage and the net-net of the two frankly is difficult to quantify.

What we think, what I think personally is that as we move forward for the next 10 years, you know, for a company like us with innovative products coming to market over the next 10 years, the fact that patients part of the payments for this innovative treatment is reduced is fundamentally a very good thing because it will give excess to more people in the U.S.

[Cory Kasimov, JP Morgan]

All right, perfect. Thank you very much.

[Operator]

Thank you. The next question is from the line of Brian Abrahams with RBC Capital Markets. Please proceed with your question.

[Brian Abrahams, RBC Capital Markets]

Hi there, thanks so much for taking my questions. I wanted to drill down a little bit more on the Phase 3 vitiligo trial design. Chris, if you could talk a little more about what shape your choice of endpoints there for the Phase 3, the F-VASI75, whether that was driven by regulatory feedback or more about meaningfulness to patients, how we should be thinking about timelines and potential timelines for enrollment there? And then what your goal would be for potentially maximizing this differentiation versus other topicals from those studies? Thanks.

[Steven Stein, Executive Vice President, Chief Medical Officer]

Brain, hi it's Steven. Thanks for your questions. So re the Phase 3 design and the primary endpoint and whether it is regulatory or patient driven or both, as you can see, as you set the bar higher as regards VASI scores, whether it is 25%, 50% or 75% obviously the relative percent gained in achieving the efficacy endpoint is somewhat lower. But it is meaningfulness right? So once you get up to 75% re-pigmentation you are proving to regulators that you've achieved something meaningful as well as to patients, so it's both in that regard and it is both driven by discussions with regulators and obviously taking patient input into regard.

You'll see the – the vehicle response rate is zero at that time at 24 weeks. What we expect and what we know from the cream and how it behaves is over time actually these numbers go up. So remember this study actually goes on for a total of two years. We will eventually have 52-week data and data beyond that and there is every expectation given the way it works in the natural course of this disease that those numbers will increase over time at 52 weeks and beyond. So it is a bit of both and it will set a standard for future studies in terms of achieving that endpoint.

In terms of timelines, again I'll just be repetitive, the vehicle response rate is zero, so we don’t require a great deal of patients to conduct these studies. We require two studies as per the regulations, but there are only 300 patients each given the very low to zero vehicle response rate. So we're looking to enroll 600 patients. I expect it will enroll quickly. We just can't give you exact timelines at this juncture.

Differentiation wise, we know from the atopic dermatitis program that, and that has extensive now patient numbers in the exposure data that the cream is extremely well-tolerated. In atopic dermatitis there is resolution of– of the itch in 48 hour or less. There is no burning on application. So, you know we have – as long as we achieve the efficacy we fully expect from our Phase 2 program we have a differentiated profile from a tolerability point of view. Thanks.

[Brian Abrahams, RBC Capital Markets]

That's really helpful. Thanks.

[Operator]

Thank you. Our next question is from the line of Carter Gould with UBS. Please proceed with your question.

[Carter Gould, UBS]

Great, good morning. Congrats on the quarter. Thanks for taking the question. Maybe one for Steven, just digging in a little bit more on to GRAVITAS-301, just kind of wondering around kind of your assumption and the importance of showing a separation on non-relapse mortality when you think about sort of the target product profile and as we think about that Phase 3 readout? Thank you.

[Steven Stein, Executive Vice President, Chief Medical Officer]

Carter, hi, Steven, thanks for your question. So GRAVITAS-301 for everybody else is itacitinib and steroid naive acute graft-versus-host disease. It has two very important endpoints; the overall response rate as well as non-relapse mortality. So that's - that's due to anything other than disease relapse, so either infections or progression of graft versus host disease. In terms of the primary endpoint and overall response rate, the study is powered to show a 16% or greater increase in overall response rate that's public and we've made that available.

In terms of non-relapse mortality, it's a 40% relative reduction in non-relapse mortality at six months, and that we fully expect from our enabling proof of concept data to achieve both those endpoints. We need to achieve both to get the study across the finish line and work towards a submission for both. So those are the endpoints we aim for, the proof of concept data easily exceeded those, so we have room to move.

[Carter Gould, UBS]

Thanks.

[Operator]

Thank you. The next question is from Salveen Richter with Goldman Sachs. Please proceed with your question.

[Salveen Richter, Goldman Sachs]

Good morning, thanks for taking my question. So with regard to your Phase 3 topical ruxolitinib trial in atopic dermatitis that's reading out next year, the study ongoing is in adults with surface area limits. Can you just help us to understand the market targeted by this study and when you look at the adult population versus the pediatric population and then your plans for studying pediatric patients given you have a Phase 1 study ongoing? Thank you.

[Steven Stein, Executive Vice President, Chief Medical Officer]

Yes. Salveen . Hi, thanks for your question. So you're correct, the current program looks at patients 12 years and above and that it covers mild-to-moderate atopic dermatitis and that covers the vast majority of patients suffering from the condition.

We do want to eventually, once we achieve adequate safety data to enable the work study younger patients, but we need to first prove that there is no issue in terms of safety in that population. But as I said, it doesn't represent the majority of the patients there.

The body surface limits are just somewhat practical in nature. Remember we are applying a cream and that you just can't apply it to the entire body, but again this encompasses patients with a majority of atopic dermatitis and we are comfortable with the way the program is set up. Thanks.

[Salveen Richter, Goldman Sachs]

Thanks.

[Operator]

Thank you. Our next question is from Marc Frahm with Cowen and Company. Please proceed with your question.

[Marc Frahm, Cowen and Company]

Hi, yes. Thanks. One thing that wasn't touched on in the regulatory or in the recent R&D update, it's maybe - could you touch on the essential thrombocythemia kind of enrollment update or trying to maybe cut the trial off and get a publication out that could support something like guideline inclusion? And then, given the fact that those have been kind of going slower than expected, but were part of long-term guidance, do you need to update that long-term guidance for Jakafi?

[Steven Stein, Executive Vice President, Chief Medical Officer]

Hi, Marc, hi, it's Steven. I'll do the first part and then I'll ask Barry to address the -- contribution to guidance. So, you are correct and we said this on numerous calls that given the eligibility criteria required to get onto the study in that patients have to have a high white cell count and be post hydroxyurea and then be further randomized to either ruxolitinib or anagrelide, it hasn't been an easy study to enroll at all and we said, you know it's taken longer than expected. So we are very much considering whether as you said, this should be changed more into a publication strategy. We are currently working with the regulatory authorities on another amendment that may help enrollment and that's allow prior anagrelide and we'll see if that will help enrollment or not. It's too early to tell in terms of that.

Remember, the vast majority of patients with essential thrombocythemia are controlled with hydroxyurea, so it was really always for the patients who weren't in that space. It's the last myeloproliferative neoplasm that we don't have an indication for. We know from spontaneous use, anecdotal reports and others, that the drug has efficacy there and that's why we conducted the Phase 3 program, but it could well be turned more into a publication [indiscernible] Elistin [ph] top strategy.

I'll ask Barry to answer your next question.

[Barry Flannelly, Executive Vice President, General Manager, US]

Hi, Marc. So we're very confident in our long-term guidance of $2.5 billion to $3 billion. We - even without ET, but as Steven said, we do have some spontaneous use of Jakafi for patients with ET. I think that will continue, but the vast majority of sales really come from continued growth in MF, PV and GVHD.

[Marc Frahm, Cowen and Company]

Thank you.

[Operator]

Thank you. The next question is from the line of Michael Schmidt with Guggenheim Securities. Please proceed with your question.

[Unidentified Analyst]

Hi guys, this is Kelcy [ph] on for Michael. Thanks for taking our questions. First, so we've heard from physicians that patients stay on Jakafi for a pretty long time. I guess, in this context, how could the potential approval of fedratinib in the coming months maybe affect Jakafi patient duration? And then secondly, we were just hoping if you could provide a little more color on the FGFR tumor agnostic program, maybe just kind of remind us what bar needs to be cleared with that data set to potentially warrant an agnostic label? Thanks so much.

[Barry Flannelly, Executive Vice President, General Manager, US]

So thanks, Kelcy, this is Barry. I'll take the first part of the question and hand it over to Steven for the second part of the question. So for the potential launch of fedratinib, we believe that patients will continue to stay on therapy as long as they benefit from Jakafi which is both in MF and PV quite a long time.

So I think that's the most important thing is that patients get the most benefit out of Jakafi before they move on to something else. As far as the efficacy and safety of Jakafi as compared to other JAK inhibitors including fedratinib we're very confident that Jakafi is the best-in-class drug and that patients should start on Jakafi before they move on to something else. So we don't think it's really going to affect as much at all. Steven?

[Steven Stein, Executive Vice President, Chief Medical Officer]

Thanks, Barry. Thanks for the question. So this is a very important part of the pemigatinib program. So remember the cholangiocarcinoma study is complete. We expect to file in the second half of this year. The bladder cancer work is ongoing and should complete enrollment also second half of this year and hopefully would be part of a submission next year. And then the third pillar here is the tumor agnostic program.

We also have an ongoing effort in a very rare myeloproliferative neoplasm that's driven by FGFR 1 chromosome 8p11 translocation. But in terms of the tumor agnostic program, you're right the -- there is, you can't be specific in terms of a bar, but let me just give you a sense of some of the tumors.

If you look at endometrial carcinoma, is about 10% of those patients that have FGFR two mutations or fusions. Glioblastoma is also about 10% for FGFR 3, squamous cell non-small cell lung cancer about 5%, FGFR mutations or fusions rectal cancer about 2%, and squamous cell head and neck also about 2%. All of those are allowed to come on the program. The guidance from regulators to date has been, if you already have an indication, you have an established drug that hits -- an oncogene has already been shown to work and at that juncture will have cholangiocarcinoma and hopefully bladder cancer as well, then there is obviously precedent in the most recent ones probably checkpoint blockade with MSI-high tumors with checkpoint blockade they got an indication.

In terms of de novo indications there is obviously NRTK inhibitors now that are given across the board where the histology is agnostic. So you need to see reasonable response rates that are durable. Some of those tumors I mentioned, you would require a higher number than glioblastoma for example, where there is a lot of unmet need.

So it would be a little bit on case-by-case basis. As long as the genetic mutation is a driver, the drug hits that driver mutation and causes a response rate that's durable, we expect with the cumulative data set to possibly get a tumor agnostic indication there. The opportunity from a patient point of view, actually if you add all those up, becomes bigger than the whole for all the other tumor types. So it's a very, very important program to us.

[Unidentified Analyst]

Okay, great, sounds really helpful. Thank you so much.

[Operator]

Thank you. Our next question is from Matthew Harrison with Morgan Stanley. Please proceed with your question.

[Matthew Harrison, Morgan Stanley]

Great, good morning, thanks for taking the question. I guess, I wanted to ask about GRAVITAS-301as well, but more on the commercial side, could you just talk, I guess two parts here, could you talk a little bit about, given that there are a bunch of cheap generics available, what sort of efficacy differential do you think you need to be able to achieve to have solid pricing premium there and uptake? And then just briefly comment on what sort of sales force expansion, you think you need to have to maximize the syndication? Thanks.

[Hervé Hoppenot, Chairman, President, and Chief Executive Officer]

I'll let Steven start off with the beginning, and then I'll pick up on the sales force and potential for the drug.

[Steven Stein, Executive Vice President, Chief Medical Officer]

So, Matthew, let me just go back to your important question around endpoints in GRAVITAS-301. We spoke about them briefly earlier. So remember, there are two important endpoints. There is the overall response rate at day-28 and then there is non-relapse mortality and obviously this is a steroid naive acute graft versus host disease. So it's a combination of itacitinib and steroids versus steroids alone and you alluded to steroids being a cheap generic, and that's exactly why the studies conducted and powered to show an appreciable difference in both.

So just let me remind you on the overall response rate, we need to see a 16% absolute improvement in response rate or better and then it has to be coupled with six months in non-relapse mortality that was relatively speaking 40% or better to get both to justify the use of a JAK inhibitor in addition to steroids and that population. I'll ask Barry to address your commercial question.

[Barry Flannelly, Executive Vice President, General Manager, US]

So with the endpoints that Steven laid out, I don't think there will be much of a problem getting premium pricing at least compared to generics like steroids, if that's what you're implying. Non-relapse mortality is a significant endpoint and again I think we'll be able to have an adequate price for this drug.

As far as the sales force goes, in the in the United States we mostly have it covered to be honest. We might have expansions for other drugs that are coming, including itacitinib and pemigatinib that we'll think about in a little bit, but in Europe and Japan, then we will need to have a sales force that increases to certain amount.

[Hervé Hoppenot, Chairman, President, and Chief Executive Officer]

Yes, just a word on Europe, in fact we did, we did the calculation recently and the Iclusig sales force that we have today there is in fact very much targeting that same centers that are doing bone marrow transplant. So there would be some increase, but it would be relatively marginal regarding the European side.

And in Japan, we would love to have itacitinib in GVHD as our first product to launch in hematology, because again the number of centers is relatively limited compared to the overall need for sales force in hematology. And it would be something that would be feasible with a number of reps, of commercial people that is really small compared to the traditional Japanese sales force that you need for oncology.

So Europe, we are almost there. So there is a marginal increase. And Japan it would be very reasonable. So it's an indication for us that would be a driver of the top line growth, but would be also very good contributor to the bottom line.

[Mike Booth, Investor Relations]

We can get the next question please?

[Operator]

Thank you. Our next question is from the line of Alethia Young with Cantor Fitzgerald. Please proceed with your question.

[Alethia Young, Cantor Fitzgerald]

Hey guys, thanks for taking my question. Congrats on the progress. I just wanted to go to the PI3-kinase. I know you have data coming next year and obviously there is some PI3-kinase as they're starting to emerge again. So I just wanted to get your updated thoughts on how you're thinking about what the reasonable profile for this drug could be and kind of some of your thoughts heading into the data in 2020? Thank you.

[Steven Stein, Executive Vice President, Chief Medical Officer]

Alethia hi, Steven. Thanks for your question. In terms of the PI3-kinase delta program in lymphomas, I'll also remind you by the way, we have the RUX combo ongoing in myeloproliferative neoplasms as well, particularly MF. But in terms of lymphomas, which I think is the meat of your question there are three registration directed approaches. One is against follicular lymphoma, the other against mantle cell and the third one against marginal zone lymphoma. They are all enrolling really well. They will complete enrollments in the second half of this year. We'll get data, as you alluded to in 2020 and we expect, based on activity we've seen to date high response rates that are durable. And then each of their own will be submitted as potential indications.

There is a potential to lump together lower grade lymphomas. So you could do follicular and marginal zone together for example. Mantle cell is probably standalone. There is a crowded space as you alluded to in terms of mechanism of action, there are BTK inhibitors, BCL2 inhibitors, CAR-T therapies, et cetera, but all those conditions remain incurable. All have unmet need attached and we've seen regulators even more willing lately in areas of unmet need to approve additional agents. So we remain confident in the approach, thus far.

And there will probably be more in the accelerated approval, conditional approval camp. So you will likely see should the datasets justify them confirmatory studies being set up more likely combination work, but that's the entirety of the program. All the data on those studies in 2020. Thanks.

[Hervé Hoppenot, Chairman, President, and Chief Executive Officer]

And just, sorry, just a quick followup on that. As far as safety goes, I mean do you think that's what really is going to differentiate, I mean kind of what have you been doing there with those and kind of help with that as well? Thanks.

[Steven Stein, Executive Vice President, Chief Medical Officer]

Yes, Alethia I think you're right. We took a timeline hit because of that. We did some very careful work with scheduling and dosing because we knew the drug is highly active, even B-cell tumors literally melt away with PI3-Kinase delta inhibition, but in the long-term toxicity particularly colitis. So we looked at induction daily dosing for eight weeks and then switching to weekly, and then we looked at induction daily dosing for 20 milligrams daily for eight weeks and switching to lower dose daily, and we've done a lot of work in that regard.

It looks like both of those schedule and dose changes ameliorate the safety profile quite substantially. For example, we see little to no colitis at this date, at this juncture. We still have to wait for the complete dataset. I think it's likely at this juncture that you'll see, this 20 milligram daily for eight week induction to get the maximum effect, maximum response, and then likely switch to lower dose daily dosing of like 2.5 daily, and that should get us to the therapeutic ratio we desire and you alluded to, because it will be critical. You'll have to hit that efficacy bar and then have tolerable safety profile. Thanks.

[Alethia Young, Cantor Fitzgerald]

Thank you.

[Operator]

Thank you. Our next question is from the line of Tyler Van Buren with Piper Jaffray. Please proceed with your question.

[Tyler Van Buren, Piper Jaffray]

Great, thanks guys. Good to see all the progress over the course of the quarter. I had a question with respect to REACH3in chronic GVHD that we'll see by the end of the year, much like you did for GRAVITAS-301 where you spoke about the parameters for overall response rate and non-relapse mortality, could you speak about the powering assumptions or what you need to achieve for success in REACH3 and your comfort with what we will see on best available therapy and what you would expect it to show?

[Steven Stein, Executive Vice President, Chief Medical Officer]

Sure. Thank you. It's Steven. So, we haven't given out the statistical analysis plan powering assumptions for REACH2 and REACH3 like we have for GRAVITAS-301, but I can talk to the meat of your question. Remember both REACH2 and REACH3 are randomized against best available therapies. It's not wide open. There is a specific list for each trial that's available on the clinical trials carve listing [ph]. For REACH3 best available therapy in chronic include therapies like extracorporeal photopheresis, low dose methotrexate, mycophenolate, M2 inhibitors and a few others including BTK inhibitors.

So you are correct. I mean the study has to beat those best available therapies. We know from our - again our proof of concept data with ruxolitinib in the setting that we get higher response rate that's what's been published to date with best available therapies. All those therapies I mentioned while not approved have had Phase 2 studies done and shown 30% to 50% response rates. But in totality, we'll have to beat the response and the durability for the response, but we haven't shared the powering assumptions publicly yet. Thanks.

[Tyler Van Buren, Piper Jaffray]

Okay, thanks. So just as a followup on REACH2, is there any kind of, I guess what incremental data in that study do you think is most important to continue to facilitate uptake of Jakafi in that setting?

[Steven Stein, Executive Vice President, Chief Medical Officer]

I'll talk from a clinical perspective. I don’t know if Barry will want to add anything afterwards. The -- again it's different from REACH1. REACH1was a single arm study. You've seen the data and as I've already said we got a full approval from the FDA on that data set. So it's actually nothing more required in the U.S. from a regulatory point of view for REACH1.

But obviously, this is an important dataset that will be randomized against best available therapy. We will get a sense of what the response rate is in that randomized setting with Novartis. They'll be using that globally for a file in steroid refractory acute and we'll get a sense of the safety versus best available therapy. But I don't expect to see a different data set in terms of response or durability of response that we've seen from REACH1 and we actually don't need it from a regulatory point of view. From Barry, if you want to add anything?

[Barry Flannelly, Executive Vice President, General Manager, US]

Yes. No. Obviously so what Steven said it's another solid data set that for those people that might still have some hesitation, BMT, healthcare professionals that might have some hesitation about introducing a drug like Jakafi it will just give them more confidence that in fact this is an important drug to be used in the treatment of this devastating disease.

[Tyler Van Buren, Piper Jaffray]

Great, thanks very much.

[Operator]

Thank you. Our next question comes from Josh Schimmer with Evercore. Please proceed with your question.

[Josh Schimmer, Evercore]

Hey, thanks for taking two quick questions, first, can you quantify how much of the Jakafi quarter-over-quarter growth came from MF versus PV versus GVHD versus improvement in gross to net? And then on that topical franchise I get asked a lot whether topical drugs can be premium priced, if so, what kind of price band are you thinking that would account for both a vitiligo indication which is less common and for atopic dermatitis indication that might be more common? Thanks.

[Steven Stein, Executive Vice President, Chief Medical Officer]

Sure. So, Josh. Thanks for the question. So for the quarter, so MF continues to be, if there is about 14,000 patients in any given quarter MF accounts for about 7,000 patients, PV accounts for about 5,000 patients, and others is about 2000 patients in any given quarter.

So, the growth, so new patients in total patients for MF grew quarter-over-quarter, for PV grew quarter-over-quarter, for other grew quarter-over-quarter and we can't always break that out for GVHD. How much was accounted for in gross to net was 4% quarter-over-quarter. So, as you know the gross to net in the first quarter has the biggest impact and then it gets better in the second quarter. As far as premium price, I'll turn it over to Hervé and see if he has some comments.

[Hervé Hoppenot, Chairman, President, and Chief Executive Officer]

So, the situation is the following, is that we have a Phase 3 ongoing, two Phase 3 ongoing in atopic dermatitis with two different concentration being compared to a placebo. So vehicle versus two different concentrations, so that would read in 2020 somewhere next year and we are initiating the vitiligo Phase 3 study. So your comment is -- your question is really about the pricing, is the pricing identical between two indications where for one of them vitiligo we have a first-in-class disease modifying effect, and another atopic dermatitis where there is a fair amount of competition.

I think it's important to remember that the duration of treatments are very, very different between the two indications. You heard from Steven that the vitiligo the 24-week data that has been published is one aspect, but the 52 weeks. If the trend continues, we'll show that the duration of treatment should go beyond 24 weeks, where in fact the treatment in atopic dermatitis is in many cases just a few weeks per year if you look at it over a 52 weeks period. So this entire pricing question is not resolved yet. We need to have more data point to be able to make the right decision between the two indications and the different concentrations, and frankly, it will be something that will be done probably during the -- when we see the data in atopic dermatitis.

Can we have a premium price on the topical formulation is an excellent question. I frankly believe looking at the Vitiligo data that is accumulating that there is a case to be made about the economic value of this topical ruxolitinib formulation, because it is frankly giving a level of efficacy that is better than what we can see from the data we have, what we can see with alternative treatments that are in fact fairly expensive, so there is, there is a value case that could be made around the vitiligo indication.

[Josh Schimmer, Evercore]

Great, thank you.

[Operator]

Thank you. Our next question is coming from the line of Stephen Willey with Stifel. Please proceed with your question.

[Stephen Willey, Stifel]

Yes, good morning, thanks for taking the question. Just a quick question on Jakafi guidance and then one for Steven. It looks like the high-end of the new range implies, I think less than 4% sequential growth going forward. Just want to make sure that there is nothing implied in there from a discounting or headwind perspective?

[Barry Flannelly, Executive Vice President, General Manager, US]

This is Barry. Thanks, Stephen. So, no, there is no discounting. We think that the low end of the guidance is 16% growth year-over-year in net sales. The high-end guidance is 19% growth year-over-year. We're confident by lowering the lower end of our guidance that will come in at the upper end of our guidance.

[Stephen Willey, Stifel]

Got it. And then maybe just quickly for Steven, is it your expectation that the competitive landscape of FGFR inhibitors including pemigatinib are going to have shared mechanisms of acquired resistance?

[Steven Stein, Executive Vice President, Chief Medical Officer]

Yes, it's a good question. There is obviously erdafitinib approved now in bladder cancer. We should be the first in cholangiocarcinoma, but there other inhibitors out there. They all have slightly different profiles in terms of the specificity and whether they are more promiscuous for other receptors. And because of that the resistant profile that may ultimately emerge may be different for each of them. It's just too early to know. I mean, we are highly encouraged the collection of biopsy and sequencing of patients that have progression it is just not that easy to do.

And if you witness historically other diseases, I mean, take chronic myeloid leukemia with the introduction of tyrosine kinase inhibitors there you got the entity of T315I mutations forming which is a new disease for which a drug like ponatinib works. Right?

So, you will see what develops. We just don't know at the moment what the resistant mutation profile will look like for our drug versus the others. I suspect there may be slight differences because each of the agents it's slightly different receptors upfront, can't give you more at the moment.

[Stephen Willey, Stifel]

Thanks.

[Operator]

Thank you. Our next question is from Peter Lawson with SunTrust Robinson Humphrey. Please proceed with your question.

[Peter Lawson, SunTrust Robinson Humphrey]

Thanks for taking the questions. Just on pemigatinib, just how should we think about the durability you would need to see in the pan tumor setting, should we think about that as kind of individual case-by-cases or can we kind of think about it as a collective durability?

[Hervé Hoppenot, Chairman, President, and Chief Executive Officer]

Sorry, we just, yes, we have Steven.

[Steven Stein, Executive Vice President, Chief Medical Officer]

Sorry Peter, we've got a microphone issue for a second. So, just in cholangiocarcinoma first then I'll talk about the pan-tumor thing. Remember it's a second line study. The standard of care currently is chemotherapy with 10% to 15% response rate and very short progression-free survival of a few months.

So in that setting, versus that we would have to beat the response rate and then the progression-free survival data. Pan-tumor wise as I said, if you look at the different entities, endometrial carcinoma, glioblastoma, you're going to have different progression-free survival durability that you need to see and each one will be a case-by-case to get to the point you made. It's just hard to comment now. Thanks.

[Peter Lawson, SunTrust Robinson Humphrey]

And just a followup on the PI3K, the dose changes and intermittent scheduling, do you think that kind of hinders the potential uptake in what could be a crowded marketplace in follicular and MZL?

[Hervé Hoppenot, Chairman, President, and Chief Executive Officer]

I think it's a good question. You know, we did toy with purely scientific data driven with weekly dosing, which may or may not have had a compliance issue. But as it turns out, it's looking like and we'll have to back this up with data in the future, that it will still be daily dosing and it will just be a different dose. So it will be a 20 milligram induction for 8 weeks, followed by a lower daily dose.

So there is not going to be a scheduling issue that I think will hinder uptake. I think what we're doing with the higher dose induction is the right thing because most - just about all the responses take place in the first eight to nine weeks. So you maximize your response and then you scale back to still hold the tumor and check but manage the tolerability. I don't see an uptake issue with that.

[Peter Lawson, SunTrust Robinson Humphrey]

Great, thank you so much.

[Operator]

Thank you. The next question is from the line of Evan Seigerman with Credit Suisse. Please proceed with your question.

[Evan Seigerman, Credit Suisse]

Hi, all, thank you for taking the question and congrats on the progress. One on pemigatinib, so can you just remind us of the opportunity in cholangiocarcinoma? And more broadly, how do you compete against J&J and the potential bladder cancer opportunity? And then one for Christiana, you had mentioned that you have some ability to potentially do some BD [ph], can you remind us of your estimated capacity and how this could potentially fit into the strategic priorities of Incyte? Thank you.

[Steven Stein, Executive Vice President, Chief Medical Officer]

Yes, Evan, thanks it's Steven. I'll go first. So if you look at the cholangiocarcinoma opportunity intrahepatic cholangiocarcinoma, about 13% to 20% of patients have FGFR2 translocations. So we estimate about 2000 to 3,000 addressable intrahepatic cholangiocarcinoma patients in major markets globally with that particular mutation and we should be first there. You're right that J&J erdafitinib has the indication in bladder first. This is probably about 15,000 patients globally with the FGFR3 mutation there, but just a few issues.

So we'll see. If you look at their label in terms of tolerability obviously they hit the efficacy bar they wanted, but in tolerability they have, as I said upfront to different profile in terms of hitting different receptors and they did have an ocular tolerability issue of around 20% to 25%. We'll see if we are able to compete there in a better way and that we will achieve the efficacy desired, but have a better tolerability profile. So that's one way of differentiating as long as you have the efficacy.

And then, it terms of lifecycle management, we have different approaches going forward on what is needed from a confirmatory study point of view. And you'll see we will be, and it's already up on clinical trials out doing the first-line study in bladder cancer and they are not. So that's one other way should that work, we will differentiate and potentially get a jump on the market there.

[Christiana Stamoulis]

Hi Evan, it's Christiana. I'll take the question on the BD [ph]. First of all, as we have previously discussed, our focus is on diversification and long-term growth. So when you look at our internal pipeline late-stage pipeline is shaping up very nicely to help us achieve that objective. At the same time, we have $1.7 billion as of the end of June of cash on our balance sheet and that gives us the ability to opportunistically look at BD supplement our internal activities. So when we look at BD it would be in line with the same corporate objective of adding to diversification on the top line and driving long-term growth and focus more on the mid-term type of timeline.

[Evan Seigerman, Credit Suisse]

Okay, thank you very much.

[Operator]

Thank you. The next question is coming from the line of Jay Olson with Oppenheimer. Please proceed with your question.

[Jay Olson, Oppenheimer]

Well, hey, congrats on the quarter and thank you for taking my questions. I just wanted to follow up on pemigatinib. I think you said you would submit NDA filing later this year. I was wondering if you were going to present an updated cut of the Phase 2 cholangiocarcinoma data later in the year and also could you comment on which sales force you would use to promote pemigatinib, would that be your Jakafi sales force, and can you just talk about the overlap there?

[Steven Stein, Executive Vice President, Chief Medical Officer]

So Jay, it's Steven. You're correct, the pemigatinib files, we have the data, we have it in hand, we are presently preparing the submission and will go in the second half of this year in intrahepatic cholangiocarcinoma that has the FGFR2 mutation. With that, although we can't give you the exact meeting, but there'll be an oral presentation of the data at a meeting in the second half of this year that will be, have the content of what's in the NDA with that as well.

[Barry Flannelly, Executive Vice President, General Manager, US]

Yes and so Jay it's Barry. So we're still working on exactly how we're going to roll out the sales force next year to support pemigatinib, but it will add a few people to our 120 sales reps that we currently have and we'll keep basically the same number of FTEs and MF, PV and GVHD and have a certain number of FTEs that are dedicated to the promotion of pemigatinib. You know that in fact hematologists and oncologists throughout the United States, basically treat everything at least in the community setting. So we're really calling on many of the same offices today as we will with pemigatinib.

[Jay Olson, Oppenheimer]

Great, thanks for taking the questions.

[Operator]

Thank you. We have one final question coming from the line of Andrew Berens with SVB Leerink. Please proceed with your question.

[Andrew Berens, Leerink]

Hi, thanks, good morning guys. So I have a question or a couple of questions on the GVHD franchise and then maybe I could sneak one in on the derm franchise too. I was wondering with Jakafi approval in GVHD has there been any changes to the formulary treatment of Jakafi? And then also I was just wondering if itacitinib is approved in the frontline setting, how does that change the opportunity for Jakafi in the refractory setting?

[Barry Flannelly, Executive Vice President, General Manager, US]

Hi, this is Barry, Andrew. So in fact for does it change anything for acceptance and access for patients and Jakafi with GVHD. No, I mean, we've always had great access from the payers for Jakafi for PV and MF, and as far as we can tell in the launch, we've really have had no restrictions whatsoever. Many of the insurers actually have no utilization management for Jakafi in GVHD. Whether they'll write them in the future or not, we don’t know.

But generally speaking, patients with getting bone marrow transplants have access to all drugs. As far as it itacitinib goes, we think that itacitinib it's going to be used in first-line setting. We think it's going to help many patients in that setting for both acute and chronic GVHD. We do think that both of the drugs can live together, but obviously itacitinib will have worldwide, and that will be very important to us to launch in countries around the world. So, will patients get ruxolitinib after they get itacitinib, it's certainly possible.

[Andrew Berens, Leerink]

Okay, thanks. And then maybe just the question on the derm franchise is for Hervé, I'm just wondering how you're thinking about developing that opportunity outside the U.S.?

[Hervé Hoppenot, Chairman, President, and Chief Executive Officer]

Thanks. Yes, what we said in the past, is that the case is getting more and more convincing on the U.S. side too obviously for us to book the sales, to diversify our portfolio, to do promotion and a lot of the commercial work in the U.S., our self. As the size of the required is really this study the question is still very much open for the rest of the world.

I think you can imagine, Asia is a part of the world where we would probably benefit from having a partner and the question about Europe is really 50-50 at this point. We are looking at different options of collaboration that could help us, and we have time before we make that decision because we will get the atopic dermatitis, there let's say midyear and the fighting in the in the second half of the year. So from thereto European approvals there will be another 12 months at least. So we are basically two years away from the - at least from the launch in Europe, probably more. And we want to take that time to have a full understanding of the financial and strategic implication of that decision for Europe.

[Andrew Berens, Leerink]

Okay, thank you very much.

[Operator]

Thank you. We have reached the end of our question-and-answer session. So I'd like to pass the floor back over to Hervé for any additional concluding comments.

[Hervé Hoppenot, Chairman, President, and Chief Executive Officer]

So thank you all for your time today and for your questions. So we look forward to seeing you at upcoming investor and medical conferences, but for now we thank you again for your participation in the call today. Thank you and goodbye.

[Operator]

Ladies and gentlemen, this does conclude today's conference. Again, we thank you for your participation and you may disconnect your lines at this time.