Pamela Murphy - VP of IR Hervé Hoppenot - President and CEO Jim Daly - CCO Dave Hastings - CFO Rich Levy - CMO and Head of Drug Development Reid Huber - CSO.

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Eric Schmidt - Cowen & Company Josh Schimmer - Piper Jaffray Matt Roden - UBS Whitney Ijem - JPMorgan Chase & Co. Steve Byrne - Bank of America Merrill Lynch Michael Schmidt - Leerink Navdeep Singh - Goldman Sachs Thomas Wei - Jefferies & Co. Dave Friedman - Morgan Stanley Bret Holley - Guggenheim.

Greetings, and welcome to the Incyte Corporation’s Second Quarter 2014 Earnings 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 my pleasure to introduce your host, Ms.

Pamela Murphy, Vice President, Investor Relations and Communications. Mr. Murphy, please go ahead..

Good morning and welcome to Incyte’s second quarter 2014 conference call. On the call today are Hervé Hoppenot, President and CEO, Jim Daly, Chief Commercial Officer, Dave Hastings, Chief Financial Officer; Rich Levy, Chief Medical Officer and Head of Drug Development; and Reid Huber, Chief Scientific Officer.

Hervé will begin with a brief overview of the quarter, Jim will follow with an update on Jakafi, and Rich will highlight progress made across our development portfolio. Dave will then describe our second quarter financial results, after which we will open up the call for Q&A.

Before beginning, we’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 the commercialization of Jakafi, our development plans for Jakafi and other indications and for other compounds in our pipeline and our expectations for net product revenues.

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, 2014 and from time-to-time in our other SEC documents.

Hervé?.

Thank you Pam and good morning everyone. Thank you for joining this call. Let me begin by stating how please I am by our great progress and commercial momentum with Jakafi in MF, as well as the rapid regulatory and clinical advances that Incyte is making across our development pipeline.

As you see the field of oncology is evolving at very high speed and we are in a position, in a comfortable position in the transformation of cancer treatment of treatment of cancer patients.

So first, commercially phase of Jakafi continues to grow reaching $84 million in Q2 and as Jim will highlight today, we have raised our full-year on net product guidance from $315 million to $335 million to a range of between $330 million and $340 million.

As announced earlier this week the FDA has approved the inclusion of updated safety and dosing information of our survival data into the Jakafi label. So regarding PV, while we did studies to meets its primary endpoints the sNDA has been submitted based on the pivotal data from RESPONSE.

And we are confident that the results that we need are not required for FDA approval and we continue to believe that Jakafi has a potential to be an important new treatment for patients with uncontrolled PV.

We are implementing our strategic development plan in the area of onco inflammation we have initiated two Phase III studies for ruxolitinib in pancreatic cancer, as well as three Phase II studies over ruxolitinib in other solid tumors.

Regarding immuno-oncology we have no signs per-clinical trial agreements for our IDO inhibitor, so most recent of which Genetech was announced yesterday and we have already initiated the clinical trial of 24360 in combination with Merck’s anti-PD-1 immunotherapy pembrolizumab.

In addition, Novartis and Eli Lilly continued to move our products forward, the royalties we receive from Novartis on ex-U.S. sales of Jakavi rose by over 100% in Q2 2014 of our last year. And in addition, Jakafi has recently been approved in Japan, figuring the payments of 25 million milestone to Incyte.

We expect Lilly to share results from Phase III trial of Baricitinib our JAK1, JAK2 Inhibitor which is in development for rheumatoid arthritis beginning later of this year and to 2015. Now, I’ll pass to Jim, who will provide more details around our commercial accomplishment with Jakafi..

Thank you, Hervé and good morning everyone. Our second quarter net product sales of $84 for Jakafi reflect continued growth, underlying demand in intermediate and high-risk myelofibrosis. Year-over-year net sales grew 55% and quarter-over-quarter sales grew 21% with the following components to change relative to the prior quarter.

Underlying demand as measured by bottles dispensed to patients grew by 12%. Net price increased 8% driven by both the price increase on April 1st and a seasonal improvement in gross to net. Inventory increased by 1% and inventory in the channel remains at the low end of the normal range of three to 3.5 weeks.

As a result of the first half year performance trends, we’ve increased our 2014 full year net product revenue guidance from the previous range of $315 million to $335 million to an updated range of $330 million to $340 million.

Our Jakafi net sales guidance assumes no meaningful contribution to revenues in 2014 from a potential FDA approved indication in PV. We believe the increased underlying demand in the second quarter reflects the continued effective execution of our commercial strategy to grow Jakafi intermediate for high-risk MF.

Expansion of our field force earlier this year has led to a significant increase in promotional activity and educational programs. The debt and breadth of prescribing continues to increase. There is an improved understanding of Jakafi efficacy regardless of JAK2 V16, V617F half mutation status as well as the importance of individualized dosing.

And finally the overall reimbursement environment for Jakafi continues to be favorable. The vast majority to payers manage Jakafi consistent with the label, physicians are able to successfully manage most prior authorizations that exists and the majority of patients are able to afford their out-of-pocket cost.

We continue to see MF as a source of sustainable long-term growth for Jakafi. With an addressable population of at least 15,000 patients with intermediate to high-risk MF, we have less than one-third of these patients currently on Jakafi, while nearly 70% of target physicians have prescribed Jakafi for at least one MF patient.

These physicians typically have additional MF patients in their practice or diagnosed and are appropriate candidates for treatment with Jakafi.

These watch and wait patients are generally considered to be stable based upon blood counts, but in reality are experiencing a debilitating and worsening symptom burden that corresponds to the progression of the underlying disease. The primary focus of our commercial strategy today is on earlier treatment with Jakafi.

As the question for most physicians is not if Jakafi should be used, but when it should be used in the course of the disease. Our educational efforts are directed at highlighting and reinforcing the benefits of earlier treatment with Jakafi versus waiting for decline and blood counts as a trigger to initiate treatment.

Last week’s FDA approval of the Jakafi label update, which contains the Kaplan-Meier’s survival curves and tables providing the probability to survival at one, two and three years from COMFORT-I and COMFORT-II and expanded safety and dosing information all meaningfully adds to the totality of the data available for Jakafi and supports our discussions about when to appropriately begin treatment with Jakafi.

Turning now to our next new indication for Jakafi, we believe the unmet need in polycythemia vera is clear that represents a major commercial opportunity and that PV should make a substantial contribution at Jakafi sales in 2015 and beyond.

Market research indicates that the primary treatment goal in PV is the prevention of thrombotic events through consistent and durable control of Hematocrit. Secondary goals include symptom improvement, spleen volume reduction and controlling leukocyte and platelet counts. Based upon claims data there are at least 100,000 patients in the U.S.

diagnosed and treated for PV. Two large chart audits that we’ve conducted as well as independent publications supported about one in four or 25,000 patients in the U.S. had inadequate response to or intolerant of HU. As indicated by a lack of consistent Hematocrit control.

These 25,000 patients with Hematocrit consistently above 45% have uncontrolled PV and represents the unmet needs in the addressable population for Jakafi. Based upon the results of the response trial we’re confident in the ability of Jakafi to deliver consistent from durable Hematocrit control that is superior to best available therapy.

We should know in early August when we have a priority or standard FDA review and we will be fully prepared to launch Jakafi as the first and only FDA approved treatment for PV as early as December of this year. As we look at the PV market compared to MF, the addressable patient population is substantially larger.

Additionally, the broad base of positive physician experience with Jakafi and MF should help up take in PV. Also relative to MF, we believe that PV launch will be more straight forward in terms of diagnosis, mutational status and dosing.

95% of PV patients have the JAK2 V16F mutation and whereas a drop in Hematocrit is undesired in MF is actually a treatment benefit in PV. Finally based upon age and health status, we would expect a longer duration of treatment in PV, VAN and MF.

Conversely, the urgency to treat in PV may be less than MF and we expect there will be significant educational requirements during the launch phase, leading to a more gradual ramp in sales with less [Indiscernible] effect than we saw in the MF launch.

That said, we remain confident that MF and PV combined represent a $1 billion opportunity for Jakafi in the U.S. We’ve always said that MPNs (ph) are just the beginning, we have a deep pipeline of novel programs that represented exceptional opportunity to make difference for patients. To discuss this in more detail I’ll turn it over to Rich..

Thanks Jim and good morning everyone. As Hervé mentioned in his opening remarks the development team here at Incyte has made rapid progress across the portfolio and I’ll now give you some additional color on the key items.

Earlier this week, we announced the updated safety and dosing information as well as overall survival data has been added to the myelofibrosis pathogens for Jakafi. Kaplan-Meier curves from COMFORT-I and COMFORT-II now put in label.

In COMFORT-I, the probability survival for patients initially randomize to receive Jakafi and Placebo where 70% and 61% respectively in three years with survival probabilities at one and two years also provided in the label.

Similar presentations are given for COMFORT-II we’re at three years the probability of survival was 79% and the group initially randomized to Jakafi and was 59% in the group initially randomized the best available therapy.

The meeting times to cross over were nine months for the group randomize to Placebo and COMFORT-I and 17 months for the group randomize the best available therapy in COMFORT-II.

And the revised label also provides new information and dosing, specifically, it indicates that among patients randomized to Jakafi with baseline platelet counts between 100 and 200 times per liter who started dose of 15 milligrams per day 65% required a dose reduction in the first day of week.

This information should allow insights to provide more guidance to healthcare professionals on the expectations for dose adjustments during the first two months of therapy.

The revised label also indicates that among patients randomized the Jakafi was baseline platelet counts greater than 200 times tenth to the ninth per liter, who started the dose of 20 milligram-- only 25% required a dose reduction during the first two months.

The revised label also provides information on symptoms after discontinuation of Jakafi and updated information on monitoring for tuberculosis and modified language on drug interactions.

Overall, we believe that the changes to the label will provide useful information to healthcare providers to decide if and when to initiate therapy in their patients with intermediate or high risk myelofibrosis, helped to monitor their patients and adjust the doses of Jakafi as appropriate.

They’re moving from MF to polycythemia vera and as Jim highlighted, the primary goal on PV as hematocrit control and the data from our pivotal response trial so that ruxolitinib provides rapid and durable Hematocrit control to patients with PV. These data were presented at ASCO by Dr. Verstovsek and are available on our website.

Incyte submitted the ruxolitinib of sNDA for the treatment of uncontrolled PV in early June of this year and we expect to be able to update you shortly on the acceptance for filing along with what are the PDUFA data based on a six month or 10 months of year.

The results of release study were not included in the sNDA and we’re confident that efficacy results from release are not required for FDA approval.

Further analysis of the release are underway, these analysis will seek to evaluate what factors may have contributed to the symptom control rate for patients on stable dose of the unstable doses of hydroxyurea they were significantly higher than that seen in the best available therapy arm of response.

With this difference that led to an under powering of the release trial. We expect to present a full data from this release study and upcoming scientific meetings. The two other data fixing (ph) compounds represented at ASCO in June.

These presentations are also available on the Incyte website and have led to acceleration of our onco inflammation and immuno-oncology development activities. Based on the results from RECAP our Phase II study of ruxolitinib in combination with capecitabine and second line metastatic pancreatic cancer it was presented at ASCO by Dr.

Hurwitz initiated two Phase II trials in pancreatic cancer and several proof-of-concept trials in other solid tumors. JANUS 1 is a double-blind placebo-controlled Phase III trial in advanced or metastatic pancreatic cancer and is being conducted under SPA. This trial was initiated in March.

JANUS 2 is almost identical to JANUS 1 and was initiated in second quarter of this year. Each trials expected to enroll about 300 patients with high levels of systemic inflammation is measured by C-Reactive Protein or CRP and the primary end point for both trials is overall survival.

The three randomized double-blind Phase II proof-of-concept trials are ongoing in small cell lung cancer, breast cancer and colorectal cancer with overall survival of the primary endpoint in each study.

The positive subgroup analysis from RECAP have added to our comp and its pursuing accelerated clinical development were inside 39110 the first of our JAK1 inhibitors in solid tumors.

39110 is currently in a Phase II trial in combination with docetaxel for the treatment of non-small cell lung cancer we’re on track to begin a second Phase II trial in lung cancer later this year.

We are currently conducting dose binding studies with JAK1 inhibitor 39110 and also was ruxolitinib in combination with gemcitabine and nab-paclitaxel sold as Abraxane to find the optimal starting dose for a possible trial in first line trial of pancreatic cancer. The third ASCO presentation was given by Dr.

Gibney and this described initial positive proof-of-concept data with our IDO1 inhibitor 24360. This is a trial in combination with ipilimumab and patients with unrespectable or metastatic melanoma.

These data show that the combination of our IDO1 inhibitor plus ipilimumab were generally well tolerated and suggested that response rate and time to progression were longer than historical data with ipilimumab alone.

The synergistic activity observed with 24360 and ipilimumab as well as support three clinical data increases our confidence in the values investigating 24360 in combination with other immunotherapies including PD-1 and PD-L1 inhibitors and we’ve just added Genentech’s anti PD-L1 MPDL3280A to our list of clinical trial agreements for IDO.

The purpose of this agreement is to evaluate the combination in patients with non-small cell lung cancer. We’ve now begun dosing patients in study called KEYNOTE-037, the combination study at Merck’s by PD-1 immunotherapy pembrolizumab or previously called MK-3475 and INCB24360.

Phase 1 portion of the trail will define a recommended combination regimen and the Phase 2 portion will evaluate the efficacy and safety of that regimen in a randomized population of non-small cell lung cancer patients receiving pembrolizumab combined with either Incyte 24360 or its matching placebo.

Incyte is conducting the study in close collaboration with Merck. Phase 1/2 trials of 24360 in combination with AstraZeneca/MedImmune anti PD-L1 MEDI4736 and Bristol-Myers Squibb’s anti PD-1 nivolumab are expected to begin in 2014. These two studies will have the potential to recruit patients of multiple tumor types and be run by Incyte.

As we said we see the potential for our IDO inhibitors in combination with checkpoint inhibitors but not necessarily as monotherapy. As a result of both slow enrolments and lack of evidence and efficacy advantage as monotherapy over controlled arm tamoxifen, we’re closing our Phase 2 study in ovarian cancer.

Going forward we will focus development of our IDO inhibitor as a component of combination therapy. Now looking briefly at a couple of our other programs; let me first give you a short update on the Incyte’s 47986 our second selected JAK1 inhibitor that is in development for inflammatory disorders.

Based on recent preliminary preclinical toxicology finding, we have proactively placed clinical studies of 47986 on hold while additional preclinical study data are gathered. These preclinical findings have not been observed any of our JAK1 or JAK1/2 inhibitors such as ruxolitinib or baricitinib which is being developed by Lilly.

Our PI3-K delta inhibitor 40093 has completed Phase 1 monotherapy dose escalation trial and patients with B-lymphoid malignancies and has moved into the expansion phase. A second trial which started in January of ‘14 is evaluating for 093 in combination with our JAK1 selective inhibitor 39110.

As we previously noted these are distinct mechanisms of action and they exhibit synergy in pre-clinical models of lymphoma. And lastly on baricitinib, the rheumatoid arthritis program being run by Lilly, this is ongoing in the first of four Phase 3 trials is due to read out with top line data later this year.

So Phase 2 psoriasis and diabetic nephropathy programs are also ongoing, initial results for the psoriasis trial was presented at the American Academy of Dermatology in March and the results of the diabetic nephropathy trial anticipated in 2015. With that I’ll now turn the call over to Dave to give us some financial highlights for the quarter..

Thanks Rich good morning everybody. Let’s begin with Jakafi for which we recorded $84 million of second quarter net product revenues representing 55% growth over the same period last year.

Additionally, we reported $12.3 million in product royalty from Novartis for sale of their Jakafi outside the United States which is more than double from the same period last year. Now Novartis also continued to make progress and obtaining normal pricing and reimbursement approval for third major European country.

Now, once Novartis achieves this Incyte earned an additional $60 million milestone payment which is expected to occur in the second half of 2014. In addition and as previously announced, Incyte earned a $25 million milestone from Novartis in July as a result of Jakafi’s approval in Japan. This will be recorded at contract revenue in the third quarter.

Our gross and net adjustment for product revenue recognized was approximately $9.5 million or 10.2% for the second quarter. We still expect that our full year growth net adjustment will range from 9% to 10%.

Our cost of goods sold for the second quarter was immaterial as we continue to benefit from the fact that our starting finished goods inventory was previously expensed as R&D prior to FDA approval. In terms of operating expenses both R&D and SG&A were within our expectations. And finally from a cash perspective, we ended the quarter with $509 million.

Our cash position continues to benefit from increasing product and royalty revenue which allows us to appropriately invest in our growing development pipeline. So with that operator that concludes our formal remarks. Please open the call for Q&A..

Thank you. At this time we’ll be conducting a question-and-answer session. (Operator Instructions). Our first question today is coming from Eric Schmidt from Cowen & Company. Please proceed with your question..

Thanks for taking my question. Congrats on a commercial progress with Jakafi, may be it for Jim in terms of the updated label on OS and safety, do you expect that to have an impact on sales trends or this is just more another sort of competitive barrier down the road should feature JAK next to market.

And then just a quick one for Dave it looks like SG&A is running a little bit above the annual guidance in R&D a little bit below, is it time to adjust our thinking on those ranges..

Thanks for taking my question. Congrats on a commercial progress with Jakafi, may be it for Jim in terms of the updated label on OS and safety, do you expect that to have an impact on sales trends or this is just more another sort of competitive barrier down the road should feature JAK next to market.

And then just a quick one for Dave it looks like SG&A is running a little bit above the annual guidance in R&D a little bit below, is it time to adjust our thinking on those ranges..

Hi Eric this is Jim.

Eric to answer question both the facts are true I think it will help us to increase the overall breadth of prescribing I think for current prescribers the new label should motivate them to look for patients with what’s obvious what’s advance disease and I think longer term it does represent a significant hurdle for new competitors to try to meet to come to the market.

It will obviously take the competition years to build a three year Kaplan-Meier’s survival curve. Now in terms of trend rate our view is we’re not expecting a trend rate based upon the label update.

Now with the low prevalence disease was often rate limiting for physicians to act upon new information how long it takes for them to see their next MF patients. And as result, as a best case scenario I would not expect any type of trend break or step change in terms of performance..

In terms of R&D and SG&A we’re comfortable with the current range of guidance provide for both areas I mean traditionally for our R&D spend we do tend to see a slight hockey stick (ph) in the second half and I would expect that to continue and SG&A is tracking final..

Thank you. Our next question is coming from Josh Schimmer from Piper Jaffray. Please proceed with your question..

Thanks for taking the question maybe sticking with the expense scene. How should we think I guess magnitude was about the increase in SG&A that will be incurred with the PV label and launch.

And then separately it seems like it will be difficult to avoid profitability with these milestones coming in the second quarter so how should we think about the fully diluted share count and that happens? Thank you..

Hi Josh this is Jim. Josh I would now anticipate a major increase in SG&A with respect to the PV launch. We have already incurred the sales force expansion cost and there is a lot of synergy between MF and PV in terms of our promotional support for the new indication. So I would not build in a major step increase in expenses corresponding to launch..

And Josh you know these milestones can be lumpy in nature and you’re right in any given quarter particularly the quarter-over-quarter 60 million there is a possibility for profitability and then when you think about fully diluted share at that point that use the treasury stock method and that would take into account both employee stock options but ones that are considered diluted and the convertible debt..

Can you help us with that map?.

Sure. So if you think about sort of the fully diluted both converts were exercised and our employee stock options were exercise it ranges somewhere between 205 million and 210 million. But there are some new launches in that calculation where you add back interest expense and then for employee stock options you utilize the treasury stock method.

So it would be slightly lower than the fully diluted count..

Thank you. Our next question today is coming from Matt Roden from UBS. Please proceed with your question..

Great, thanks for taking the question and graphs on a nice quarter. I have one question on the commercial side and then another follow up if I may on the pipeline. Jim on the commercial you mention that the growth in demand this quarter was driven by MF.

Can you comment on whether or not the growth in spontaneous adoption outside of MF has sort of kept pace with that or whether or not the proportion of sales coming from spontaneous adoption is lower this quarter? And then related on the guidance it looks to me like the last six quarters you’ve done about on a average 7 million sequential in sales growth quarter-over-quarter basis your guidance implies from doing the math rate something like 2.5 million to 6 million per quarter for the rest of the year.

So are you, is this just conservative or more is there some fundamental reason for us to think that maybe the sequential trends will split on the second half..

First on the non-MF sales, that is a percentage of overall sales is remain relatively constant over the last several quarters so we have not seen any type of increase proportionality in our non-MF sales.

With respect to the phasing of the guidance the low end represents a low single digit growth rate for the rest of the year and high end represents a high single-digit growth rate for the rest of the year.

Listen Matt our goal is trying to beat the guidance that’s always our goal but we think that high single-digit growth rate represents a reasonable base case scenario that is both ambitious and achievable..

Okay, great. Just on the IDO program, now that you have vibrations with the four major players in PD-1, PD-L1.

Can you give us a little insight into what the collaborators are saying when they come to the table about IDO and the combo data from ASCO? Do you think they’re interested in committing resources just because of the mechanism or is the data or is it both? Just trying to get a sense for what industry people outside of Incyte think about 360 and whether and to what extent that program can help them?.

Okay, great. Just on the IDO program, now that you have vibrations with the four major players in PD-1, PD-L1.

Can you give us a little insight into what the collaborators are saying when they come to the table about IDO and the combo data from ASCO? Do you think they’re interested in committing resources just because of the mechanism or is the data or is it both? Just trying to get a sense for what industry people outside of Incyte think about 360 and whether and to what extent that program can help them?.

It’s difficult for me to comment on what other companies believe or tell us in private conversations.

But I would say in general the fact that we have four major either PD-1 or PD-L1 and they have all now signed collaboration agreements with us shows that across the board there is interest in combining with the IDO inhibition mechanism and in addition I think it shows that no one wants to be left out of that game by not playing at the same time.

So I think they all think that there is a good potential for the combination. And now it’s time to get the data for each of those individual combinations..

And do you have a sense Rich when we should expect to see the first data from those collaborations?.

And do you have a sense Rich when we should expect to see the first data from those collaborations?.

In part because each of these companies are competing with each other in terms of this and that release of data has to be mutually agreed between us and the other party. And I don’t expect that we will be giving out emerging data the way we had in our combination with ipilimumab.

So there is two parts to the studies first defining doses which is uncontrolled and potentially as we have done before with ipilimumab to comparisons to historical controls. How long that takes depending upon how many dose levels that we need to get to before we fairly have the right doses in each study.

And then randomized controlled second part to the study which will take longer to roll out. So we’re not giving specific guidance as to when but it’s not going to be in the very near future..

Thank you. Our next question today is coming from Cory Kasimov from JP Morgan & Chase. Please proceed with your question..

It’s Whitney on for Corey.

Wondering if you guys have any insight into how Lilly will be releasing the baricitinib data? Whether they intend to sort of top-line events they it or hold it until they have it all to release it?.

They have not given us specific guidance as to their plans. These are Phase 3 studies and I am sure they will need to pay something about information that is material to them, but what that actually is I don’t know.

We expect based on what they told us that there is a likelihood that there will be some top line data on the first study sometime towards the end of the year..

And then on PV, I guess you guys reiterated your expectations for MF plus PV to be about $1 billion opportunity.

But does the sort of release mix change the way you’re thinking about the commercial potential in PV at all or what type of patients might come on drug?.

This is Jim, it actually does not. We knew that we would not have the release data when we filed the response sNDA. So all along we knew that we would not have a symptom claim at launch.

I think the key point -- we will clearly know it’s a negative study, so that’s always a disappointment but if you’re going to have a negative study that was the one to have.

Because the primary goal in PV is control and the data contained in response gives us the promotional evidence that we need to go after the vast majority of those one out of four patients who are on controlled..

Thank you. Our next question is coming from Steve Byrne from Bank of America. Please proceed with your question..

Jim you mentioned that out of the addressable MF intermediate and high risk MF population, you are not quite a third or you are less than a third penetrated, given the survival benefit indication or information now on the label.

What penetration do you think is potentially possible here in this group? And are there subsets that you think are really not likely to be just Jakafi..

That’s a challenging question. And that’s why we’ve left it at a billion dollars between both PV and MF. Clearly, you are never going to get 100% of your addressable population. But at a third we would certainly believe that a 50% penetration is realistic and is clearly within our ambition to do that.

So as we look at the billion dollars, we don’t know if it’s 600 million with MF and 400 with PV or 500. But clearly the message we want to communicate is that we do have substantial long-term upside in MF..

And a question for Rich.

You have four of these combo studies with IDO and there is some redundancy among them seems to be at least including non-small cell lung, is it your view that there could be some mechanistic differences between the two PD-1 and the PD-01 or are you more or less cashing this fairly broad and looking at lot of different indications, is there a view of this you can share..

We are not at this time, we have no reason at this point to believe that there are differences between the two PD-1 and PD-1 and remains within whether in combination, with we will even see significant differences between the PD-1 and the PDL-1.

So the strategy here is to be a partner with a range of checkpoint inhibitors in immunotherapies and not higher so down to one thing.

And in fact while there is some redundancy particularly around non-small cell lung cancer which is interest to everyone by having different partnerships, we do get to explore a range of potential indication and depending upon initial data this potential to add indications beyond those that are currently plan.

So I think it gives us a broad look at the possibilities for combination with PD-1 targeted therapies. .

Thank you. Our next question today is coming from Michael Schmidt from Leerink. Please proceed with your question..

Hi good morning, thanks for taking my questions. I had a couple of pipeline questions.

Number one, based on emerging mechanistic understanding of how JAK pathway is involved in solid tumors, particularly do you have plans or what are your plans to evaluate your JAK inhibitors in targeted drug combinations and solid tumors in addition to ongoing studies.

Number two, we just talk about the PD-1 PDL-1 combinations of the IDO inhibitor, based on the understanding of the mechanism of 24X360, what difference is or do you expect any differences between PD-1 versus PDL-1 combination? Thank you..

Hi good morning, thanks for taking my questions. I had a couple of pipeline questions.

Number one, based on emerging mechanistic understanding of how JAK pathway is involved in solid tumors, particularly do you have plans or what are your plans to evaluate your JAK inhibitors in targeted drug combinations and solid tumors in addition to ongoing studies.

Number two, we just talk about the PD-1 PDL-1 combinations of the IDO inhibitor, based on the understanding of the mechanism of 24X360, what difference is or do you expect any differences between PD-1 versus PDL-1 combination? Thank you..

So I will start and maybe Reid has some additional comments. So first of all in terms of targeted therapies in solid tumors we’ve already started study with ruxolitinib and with what deliver them and survivor in colon cancer which is targeted therapy.

and we do have others plan with solid tumors they have not been announced yet and nothing with that ruxolitinib or 39110 but with JAK inhibitors and other targeted therapies are planned and we’ll talk about that when they’re closer to starting.

And then in addition, we’re of course interested in JAK1 inhibitors with other targeted therapies in immunologic malignancies with combination of JAK1 and our PI3K delta in b-cell malignancies as an example of ongoing study.

And with respect to PD-1 and PDL-1 I mean as I said in answer to earlier question there are three radical reasons to believe that they may be very similar or difference in what this have to generate the data and our view has been that we will do the studies and find out..

And one more will you present any additional data from the ipilimumab combination study before next year’s ASCO..

And one more will you present any additional data from the ipilimumab combination study before next year’s ASCO..

I don’t know probably ASCO is a reasonable time for an update I don’t know that it would be going any specialty meetings or anything like that..

Got it, great, thank you. .

Got it, great, thank you. .

Thank you. Our next question today is coming from Navdeep Singh from Goldman Sachs. Please proceed with your question..

Hi guys congrats on the progress during second quarter. And thanks for taking my questions. So just a couple of questions on Baricitinib maybe a question for Rich. Rich can you help us better set expectations for the upcoming Baricitinib Phase III data.

I understand that you’re not - in your Phase III trials you are not comparing Baricitinib [Indiscernible] but based on the Phase II data how should we be expecting that because safety profile of Baricitinib to look like for Xeljanz compared to Xeljanz.

And then a question for Jim, Jim what have you guys and Lilly learned from the Zell Jen plant that mixing more confident that you can execute better than them? Thanks..

Hi guys congrats on the progress during second quarter. And thanks for taking my questions. So just a couple of questions on Baricitinib maybe a question for Rich. Rich can you help us better set expectations for the upcoming Baricitinib Phase III data.

I understand that you’re not - in your Phase III trials you are not comparing Baricitinib [Indiscernible] but based on the Phase II data how should we be expecting that because safety profile of Baricitinib to look like for Xeljanz compared to Xeljanz.

And then a question for Jim, Jim what have you guys and Lilly learned from the Zell Jen plant that mixing more confident that you can execute better than them? Thanks..

So there a number of different Phase III studies that are ongoing, including study in patients who have previously felt on TNF or have response to TNF inhibitors in a few studies in DMARD or methotrexate responders.

I think one of the key studies is the largest study which is head-to-head comparison was not only continuing that the truck phase but also -- includes methotrexate. The study is large and is also the structure study.

You’ll get head-to-head comparison with Imuran in terms of signs and symptoms as well as structure which is something that was not present in the structural studies done by Pfizer.

So I think there are two key things that could lead to a differentiation, one is the safety profile and by avoiding JAK3 there are still reasons to believe that this has in Phase 2 and may very well in Phase 3 the differentiation.

The structure study has been made larger with the powering based on the results of the Pfizer study and then again it’s the ability to have a head-to-head comparison, where of course there is not a head-to-head comparison to Xeljanz per say. And I’ll turn it over to Jim to talk about commercial aspects..

We defer to Lilly in terms of all aspects of commercial execution, but just to address your question in RA it’s all about the product profile. I mean today the three largest selling drugs in the world last year were Humeral, Remicade and Enbrel.

And that is both good and bad, it’s good that it represents a tremendous opportunity, it’s bad and that they are going to defend their business very aggressively and if there is a weakness or vulnerability in your product profile it will be exploited and the issue which Xeljanz is that from launch with the 5 million BID dosing they had, perceive weakness with respect to the claims that Rich has referred to the claims to inhibit progression of structural damage.

That structure claim is absolutely vital if you’re going to compete successfully against the biologics. Now if you come in with a competitive clinical profile and you have the added convenience of one a day oral we think that can be a very successful product..

Thank you. Our next question today is coming from Thomas Wei from Jefferies. Please proceed with your question..

Just wanted to ask an immuno-oncology question and then maybe a Jakafi question as well. On immuno-oncology front just wanted to get your latest thoughts on your interest in developing biologics capabilities acquiring other immune checkpoints.

And then on Jakafi we’d love to get some of the metrics that you provided before in the past in terms of mix of doses as well as on persistence..

Sure on persistence again we can see a steady and significant increase in persistence over time. That’s driven by two things, one is we’re seeing an overall healthier patient being put on Jakafi as judged by their base line platelet counts and hemoglobin levels. And secondly, we’re seeing physicians becoming more fast in the dosing.

We’re seeing increased use of titration and we’re also seeing an increased use of lower strength doses. So we’re pleased with the progress we’ve made on the persistence front and because it’s a moving target we’ve refrained from trying to quantify it and I think we’ll remain with that position..

Hervé here, question on the moving on field of immuno-oncology in general. I must say the first priority for all of us to successfully develop our IDO inhibitor where we’re 14 plus and where we have an original mechanisms that has a lot of promising potential currently. So that’s really is the number one.

Now evolving in the field of immuno-oncology doesn’t necessarily mean biology, in fact PI3-kinase delta field is a place that seems to be moving from targeted to immuno-oncology as we speak.

So that certainly is something of interest and we have, we’re looking at small molecules of potential way to address some of the medical needs with the mechanism in the field of immuno-oncology.

And obviously probably like everybody else we would be looking at external opportunities at similar we do get internal opportunities which is the science around it and how does it fit with our overall portfolio strategy but it’s still not number one item on our priority list today..

Thank you. Our next question today is coming from Liisa Bayko from JMP Securities. Please proceed with your question..

It is John for Liisa, thanks for taking the question, I have two. First you talked a little bit about the casting of wide net with IDO partnerships and I am wondering if you can comment all about your plan to transition from that strategy to a more focused strategy as you hopefully end up getting some hits with different companies.

Is there anything you’d be looking for in a long-term partner besides a combination that works? And then second question more of housekeeping thing. I think you may have commented on this earlier but we missed it.

Can you say anything about the contribution of inventory to the revenue numbers for Jakafi this yearend expectations for the second half on inventory side..

Inventory contributed 1% to the overall 21% growth in the second quarter. We ended the quarter at the low end of our typical range of three weeks to 3.5 weeks.

And last year if you remember we saw inventory build about $4 million in the fourth quarter, we don’t know if that’s going to be recurring action or not this year and as result we do not build that into our guidance..

Regarding the philosophy behind the partnerships is really old science, what we are doing now is finding which indication if there are difference between indications for which product you throwing a reason there are differences between the PD-1 and the PDL-1 will be better if they need for combination what they do, now if it’s another case I mean we find that the mechanism is across different indication on across different product.

Frankly our goal is to develop ideal independently and to have variable that we declaring that it’s a drive that should be use and could be use in combination with multiple partner.

So the partnerships we have today are not sort of across before a bigger set there in Italy scientific partnerships, regulatory partnerships but when we find the proof of concept under right indication that could lead to approval of ideal in combination with multiple products and multiple indications that’s the goal that we’re pursuing and we would see the commercialization of that product as being done by insides..

Thank you. Our next question today is coming from Dave Friedman from Morgan Stanley. Please proceed with your question..

Hi, thanks for taking the question. Just as I look at the Jakafi U.S.

volume demand trends over the past six quarters it seems like at least in 2013 you had 2Q from a volume basis about double every other quarter and now you’re seeing a similar thing here, is there something that happens in 2Q either from Medicare perspective or something else that you guys are aware of that could explain this front..

Hi, thanks for taking the question. Just as I look at the Jakafi U.S.

volume demand trends over the past six quarters it seems like at least in 2013 you had 2Q from a volume basis about double every other quarter and now you’re seeing a similar thing here, is there something that happens in 2Q either from Medicare perspective or something else that you guys are aware of that could explain this front..

Dave, this is Jim. Dave there is natural rhythm to the business and we’ve seen that over the last couple of years now.

Particularly the first quarter will be challenging, we will have headwind in the first quarter and that’s due to a number of factors it including running out our inventory built that you may have had in the fourth quarter, it includes the phenomenon where patients may full forward in prescription from January and the December in anticipation of having new deductibles, reentering the donut hole and you can also have the friction dealing with plan changes in the first quarter.

So the first quarter is challenging and then we see a very nice rebound in the second quarter we saw that last year we see that this year, you have prepared for a slight slowdown in third quarter as you deal with quite frankly a doldrums, it involves things as vacations on the position and patients or new patients visits we’ll tend to flatten out I think you see a strength in the fourth quarter and again that can be reflection of patients going forward and that prescription we can’t, last year we did see some inventory build and so that’s kind of the rhythm in the business that we’re anticipating as we plan our phasing..

Okay, great. Thank you..

Okay, great. Thank you..

Thank you. Our next question today is coming from Yaron Werber (ph) with Citi. Please proceed with your question..

Hi this is Kevin in for Yaron this morning, thank so much for taking question.

So I wanted to congratulate you on the great launch in the upcoming expansion in PV, a quick question on what are the trials you’re planning for bar fitment (ph) and also if you could elaborate a little bit on the safety signal that you saw in 47986 and if this was something particular to RA or just the molecule itself. Thank so much..

Thanks for the question, this is Reid. Just in terms of safety signal.

In a longer term no road in toxicology stay we indentified two instances of retinal toxicity which had histologic features that we’re consistent with the generation, the finding was not observed in rodent studies nor was it observed in the 28 day studies that enabled the filing of the IND.

I also point of that we have not observed this retinal toxicity with any of the other JAK inhibitors that we’ve taken forward that includes importantly ruxolitinib or Baricitinib in 39110.

We’re currently gathering more data from the study animal that includes the control animals to determine whether the finding is likely to be treatment related but at this time we thought that -- from investigators of the finding we’re actively put on hold the 986 trial while those other data are gathered.

I will make the additional point that 47986 is from a distinct chemical scaffold -- relative to other JAK inhibitors and at this time we consider these filings to be a potential relationship to that drug and therefore possibly arising from off target activity..

And on baricitinib we really can’t comment beyond what and has been announced by Lilly so they presented the results of first part of their Phase 2 study in psoriasis, obviously they presented their rheumatoid arthritis studies some time ago the diabetic nephropathy study is scheduled to read to out and we presented in some form next year.

There are four Phase 3 studies ongoing in RA and in addition to that there is also long-term extension study beyond that we’re just not at liberty to say what they’re either going to do or the types of things they’re thinking about..

Thank you. Our next question is coming from Bret Holley from Guggenheim. Please proceed with your question..

Just a quick question on PV. Just wondering what percentage of PV patients in the U.S. as you receive hydroxyurea. And how confident are you really in the 25,000 estimates in the United States. What sources of information are you using to arrive at that number, because I sense a bit of skepticism out there on that number..

Bret it’s about 60,000 patients in the U.S. who are on HU or have been on HU. About 5,000 patients were on HU and discontinued due to lack of efficacy or tolerability issues.

55,000 patients remained on HU and in terms of the one out of four we’ve really triangulated on that through some published studies and we can share those with you off line as well as chart audits that we’ve conducted ourselves. So we’re feeling very confident that one out of four is a reasonable balanced estimate if the opportunity..

Thank you. If there are no further questions at this time I would like to turn the floor back over to management for any further closing comments..

Thank you. I think, I mean what you saw in the Q2 report is a lot of progress on many fronts first the commercial momentum is very good in that.

We have on the regulatory side the PV that has been achieved in also Q2 and as you see on the development front we’re moving forward also very fast very aggressively both in onco information and immuno-oncology with our IDO program and in addition we’re in a very good and strong financial position.

So when you look at this Q2 result as being extremely positive from our strategic objective spent. Thank you for attending the call. And I guess we’d be back in three months..

Operator:.

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