Michael Charles A. Booth - Incyte Corp. Hervé Hoppenot - Incyte Corp. Barry P. Flannelly - Incyte Corp. Steven H. Stein - Incyte Corp. David W. Gryska - Incyte Corp. Reid M. Huber, PhD - Incyte Corp..

Salveen Richter - Goldman Sachs & Co. Cory W. Kasimov - JPMorgan Securities LLC Michael Schmidt - Leerink Partners LLC Joshua E. Schimmer - Piper Jaffray & Co. Ying Huang - Bank of America Merrill Lynch M. Ian Somaiya - BMO Capital Markets (United States) Simos Simeonidis - RBC Capital Markets LLC Evan Seigerman - Barclays Capital, Inc.

Eric Schmidt, Ph.D. - Cowen & Co. LLC Liisa A. Bayko - JMP Securities LLC Brian Abrahams - Jefferies LLC Reni Benjamin - Raymond James & Associates, Inc. Peter Lawson - SunTrust Robinson Humphrey Alethia Young - Credit Suisse Securities (USA) LLC (Broker).

Greetings and welcome to the Incyte Corporation Third Quarter Financial Results Earnings Conference Call. At this time, all participants are in a listen-only mode. If you have not already done so, please close all other programs on your computer. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mike Booth, Vice President of Investor Relations for Incyte Corporation. Thank you. You may begin..

Thank you, Diego. Good morning and welcome to Incyte's third quarter 2016 earnings conference call and webcast. The slides used today are available for download on the Investor section of incyte.com. Speaking on today's call will be Hervé Hoppenot, our CEO, who will begin with some high level comments on our objectives and priorities here at Incyte.

Hervé will then pass to Barry Flannelly, who leads our U.S. organization and he will provide an update on Jakafi sales and prescription trends during Q3, as well as touch on Jakafi's recent inclusion in the NCCN Guidelines.

Steven Stein, Incyte's Chief Medical Officer, will briefly review the updated ECHO-202 data of epacadostat plus pembrolizumab as presented at ESMO and provide some background on our decision to initiate a Phase 2 trial of our FGFR inhibitor 54828 for the treatment of patients with cholangiocarcinoma.

Dave Gryska, our CFO, will summarize our third quarter financial results before opening up the call for Q&A, for which we'll be joined by Reid Huber, our Chief Scientific Officer.

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 2016 guidance, the commercialization of our products, and our development plans for the compounds in our pipeline.

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 June 30, 2016 and from time-to-time in our other SEC documents. I'd now like to pass the call to Hervé for some introductory remarks..

Thank you, Mike, and good morning, everyone. So, we have made excellent progress during the third quarter both on the top line as well as within our portfolio. But before we dig into the details, I'd like to begin our discussion today by taking a step back and talking briefly about what we are trying to build here at Incyte.

Cancer is one of the biggest challenge facing our society today. It not only have a significant impact on the wellbeing of millions of cancer patients, as well as their loved ones, but it also has a substantial economic impact, both through loss productivity and the effect on the healthcare system.

The need for more effective treatment is clear and advances are being made. As shown in the chart on the left side of slide six, since 2010, the number of new hematology and oncology approvals by the FDA has been on a upward trend.

And the chart on the right illustrates how patient outcome in melanoma depicted as improvement in progression free survival have improved with different therapeutic regimens from chemotherapy through BRAF and MEK inhibitors to immuno-oncology doublets.

Many of us felt a sense of excitement at the ESMO conference last month given the wealth of data presented and the number of innovative therapy being discussed. It also provided us with stronger evidence as the scientific community where Incyte is an active participant is in the process of transforming the treatment of cancer.

Incyte is a company based on innovation and we strive to bring first or best-in-class therapies to patients in need. Our portfolio now contains 15 development candidates, across 11 different target and we employ around 1,000 people in the U.S. and across Europe.

With total revenue in Q3 that grew 44% over the same period last year, we are in a position to reinvest our resources in multiple therapeutic opportunities. Sales of Jakafi continued to show robust growth as we approach the five-year anniversary of its initial U.S. approval.

And combining Jakafi sales in the U.S., Iclusig sales in Europe and Jakafi royalties from Novartis provides us with dynamic revenue growth.

We also have an additional potential source of revenue from baricitinib, being developed by our partner, Eli Lilly, which is currently under global regulatory review for the treatment of patient with rheumatoid arthritis.

With our financial resources and dynamic top line growth, we can reinvest in the virtuous cycle of product development to bring additional innovative therapies to patients. We have a diverse portfolio of products and are building medical and commercial footprints in major markets around the globe.

Having global development expertise in-house is already enabling us to develop our products more effectively, and we will also seek to use in-house commercial teams to successfully launch our products upon approval. I will now pass the call to Barry for an update on Jakafi..

Thank you, Hervé, and good morning, everyone. Sales of Jakafi continue to perform well. In the third quarter, net product revenue from Jakafi was $224 million, a 39% increase over the third quarter of 2015, and an 8% increase over the previous quarter.

In view of this strong growth, we are increasing our 2016 Jakafi net product revenue guidance to a range of $850 million to $855 million from the previous range of $825 million to $835 million.

We're pleased that nearly five years after its first approval, we now have approximately 9,000 patients currently being treated with Jakafi, and that number continues to grow. Growth comes from our physician education efforts, especially detailing on the long-term benefits that Jakafi treatment provides.

The chart on the right side of slide 10 illustrates the strong year-on-year demand growth that we are experiencing with both at Jakafi's approved indications. In September, we announced that Jakafi has been included as a recommended treatment for appropriate patients with myelofibrosis in the latest NCCN Guidelines.

Inclusion in the Guidelines will help inform healthcare providers, treatment decisions for patients with myelofibrosis. And we believe that inclusion in the NCCN Guidelines also underscores the important and long-term clinical benefits seen in patients treated with Jakafi.

We are also looking forward to the ASH Conference in December, where a pooled analysis of the five-year overall survival data from both COMFORT-I and COMFORT-II studies of Jakafi in patients with myelofibrosis will be presented. I'd now like to pass the call on to Steven for a clinical update..

Thanks, Barry. We've made good progress within our development portfolio since our last quarterly conference call. And today, I'd like to concentrate on the recent epacadostat data update at the recent European Society for Medical Oncology Meeting, and on our 54828, our FGFR inhibitor for which we've recently opened a second Phase 2 trial.

Last month, updated Phase 1 data from the ECHO-202 trial of epacadostat plus pembrolizumab in patients with advanced melanoma and select solid tumors were represented at the ESMO Annual Congress in Copenhagen. I'd like to start my brief overview of the data with patient safety data.

Now, with 56 weeks median follow-up for responders, and that's much greater drug exposure than our last presentation at SITC in November 2015, the combination of epacadostat plus pembrolizumab continues to be well tolerated. There were no treatment-related deaths and the maximum tolerated dose of epacadostat has not been reached.

19% of patients in the trial experienced grade 3 or 4 treatment-related adverse events and five patients or 8%, experienced treatment-related adverse events that led to discontinuation. The next slide shows the waterfall and spider plots of the patients with treatment naïve melanoma.

The overall response rate in this population was 58% and the disease control rate was 74% by RECIST. For responders, the median follow-up was greater than 56 weeks with a range of 46 weeks to 90 weeks. Importantly, at this presentation, all responders remained in response at the time of the data cut. Slide 15 shows progression free survival.

The median progression free survival has not been reached. The six-month progression free survival rate is 74% and the 12-month progression free survival rate is 57%. With all the necessary caveats across trial comparisons, we believe our data compared favorably to established benchmarks.

Recall that progression free survival is one of the two dual primary endpoints in the ongoing ECHO-301 Phase 3 trial of epacadostat plus pembrolizumab for the first-line treatment of patients with advanced or metastatic melanoma. Let's move on to our FGFR development program on slide 16.

We announced in our second quarter update that we were initiating a Phase 2 trial of 54828 in patients with bladder cancer. The study is now open for recruitment. In addition, we've also opened a Phase 2 study of 54828 in patients with cholangiocarcinoma, the type of biliary tract cancer.

While treatment for this type of cancer can be curative if found early enough for surgical resection, most cases are diagnosed in the later stages where resection is not a possibility. Cholangiocarcinoma is rare with the incidence in the U.S. and Western Europe of around 1.6 cases per 100,000 population. The rates are significantly higher in Asia.

In Japan for example, the incidence is 3.2 cases per 100,000 of population, while incidence in other Southeast Asian countries is higher still. Between 6% and 13% of all cholangiocarcinoma patients of FGFR2 translocations and an additional 5% of other FGF or FGFR alterations. We are not aware of differential genotypic rates by geography.

The primary endpoints of the Phase 2 cholangiocarcinoma study will be overall response rate in patients with FGFR2 translocations. Secondary endpoints will include overall response rate in patients with other FGFR alterations. Slide 17 summarizes the whole portfolio, which now includes 15 development candidates against 11 different molecular targets.

The portfolio graphic now includes 57643 which is our second BRD inhibitor and which is currently in a dose-escalation study. As we have done with many of our programs, we have elected to progress two distinct BRD inhibitors into development.

These compounds allow us an opportunity to evaluate different pharmacokinetic and pharmacodynamic profiles thereby increasing our optionality around decision-making in what is becoming an exciting therapeutic class. I'll finish on our news flow slide. There are multiple potential value drivers for Incyte over the next 12 months.

We are finalizing our plans to initiate the pivotal program for ruxolitinib in graft-versus-host disease. And we also expect to provide you with proof-of-concept data from our JAK1 program in graft-versus-host disease at the American Society Hematology Conference in early December.

We remain on track to initiate 39110 plus osimertinib study in lung cancer by the end of the year. And we also look forward to providing you with initial clinical data from the FGFR and BRD programs next year as the data become available.

In immuno-oncology and beginning in the first half of next year, we look forward to sharing data from some of the Phase 2 cohorts of the ECHO trial of epacadostat in combination with PD-1 and PD-L1 inhibitors. We also remain on track to initiate a proof-of-concept study by anti-OX40 agonist antibody, 1949, in the fourth quarter of 2016.

Data from Incyte's Phase 2 trial of topical ruxolitinib for the treatment of patients with alopecia areata have been accepted for presentation at the 2016 Alopecia Areata Research Summit, which is taking place in New York City on November 14 and 15. Last but not least, we are looking forward to the first regulatory decisions on baricitinib.

With that, I'll pass the call to Dave for the financials..

Thanks, Steven, and good morning everyone. In the third quarter, we recorded $269 million of total revenue. This was comprised of $224 million in Jakafi net product revenue, $13 million in Iclusig net product revenue, $29 million in Jakafi royalties from Novartis and $3 million in contract revenue.

Jakafi's net product revenue of $224 million represents 39% growth over the same period last year. Based on Jakafi's performance year-to-date, we are increasing our full year Jakafi net product revenue guidance to a range of $850 million to $855 million. Our gross to net adjustment for the third quarter was approximately 12%.

We expect that gross to net adjustment for the full year to be approximately 12%. Our cost of product revenue for the quarter was $20 million. This includes the cost of goods sold for Jakafi and Iclusig, the payment of royalties in Novartis on U.S.

Jakafi net sales, and $5 million for the amortization of acquired product rights, related to the Iclusig product acquisition. Our R&D expense for the quarter was $143 million, including $16 million in non-cash stock compensation.

Looking at projected R&D expense for the full year, we are updating our current guidance to a range of $570 million to $580 million.

The reduction in projected R&D expense from the previous guidance for 2016 is in large part due to slower than forecasted head count growth and phasing of certain expenses from various programs and our development pipeline into next year. We'll provide a range of next year's R&D expense on our fourth quarter call in February.

And given the breadth of opportunities in our current portfolio, we expect a substantial increase in R&D expense in 2017. Our SG&A expense for the quarter was $76 million, including $10 million in non-cash stock compensation. We are on track to end the full year with our existing guidance in a range of $280 million to $310 million.

We recorded $8 million in expense related to the change in fair market value of the contingent consideration for the Iclusig royalty liability, and we expect the full year amount to be approximately $17 million. Turning now to net income and earnings per share of the third quarter.

We reported $37 million in net income or $0.20 per share basic and $0.19 per share diluted. We now expect 2016 net income to be in a range of $100 million to $110 million. This range also reflects the quarter-to-date decline in the market value of a long-term investment.

Looking at our balance sheet, we ended the third quarter with $717 million in cash and cash equivalents. We expect positive cash flow for remainder of the year and expect to end the year with over $750 million in cash and cash equivalents.

As noted in our press release, Novartis achieved pricing approval for Jakafi and polycythemia vera in the third major European country in October, which triggered a $40 million milestone. We will record this $40 million milestone in the fourth quarter. To summarize, we are very pleased with Incyte's performance in the third quarter.

Jakafi delivered strong revenue growth. We have fully integrated our new business unit in Europe. We grew our cash position and continue to make significant investments in our clinical development programs.

Incyte is well positioned from a cash and operating income perspective to execute on our strategies for growth, which we are confident will deliver significant long-term shareholder value. Operator, that concludes our prepared remarks. Please give your instructions and open up the call for Q&A. Thank you..

Thank you. At this time, we will be conducting our question-and-answer session. Our first question comes from Salveen Richter with Goldman Sachs. Please state your question..

Thanks for taking my questions. Just given the milestones from Novartis (18:42) for the next three quarters and based business growth, it would appear that you will be EPS, got profitable, going forward.

Is that a fair assumption? And then a second question on the bromodomain program, can you give us a little more clarity on the difference between 54392 (sic) [54329] (18:57) and the new molecule, will you be moving into different indications and when should we expect initial data from both? Thanks..

So, Salveen, I'll answer the first question. Yes, we will be EPS positive for this year. As I mentioned, the range is between $100 million and $110 million. Obviously, we have not given guidance out for next year and we'll be doing that in our February conference call..

Yeah, Salveen, this is Reid. Thanks for the question on BRD. As we've done for many of our programs, we often will progress more than one molecule in the clinic, when it's appropriate to evaluate different pharmacokinetic and pharmacodynamic profiles in Phase 1. Bromodomain inhibition is an exciting therapeutic opportunity.

I think we're still at the early stages of that. And we think we're best positioned by evaluating both 54329 and the follow-on compound, 57643. It's really about evaluating different PK profiles and potentially different pharmacodynamic profiles and seeing how that may affect efficacy and safety.

So, we look forward to seeing those data merge over the next few quarters, and certainly we'll share them with you as we're ready..

Thank you..

Thank you. Our next question comes from Cory Kasimov with JPMorgan. Please state your question..

Great. Thank you. Good morning, guys. Appreciate you taking the questions and nice quarter. So, two of them for you.

I guess first of all, can you talk about the potential significance of the recent NCCN treatment guidelines for Jakafi and kind of how that might drive use, above and beyond how it's positioned in the market today? And do you know if there's a plan to publish guidance lines for PV as well? And then my follow-up question was just a clarification.

I was wondering if you could just talk about what you mean in your press release, where you say enrollment was suspended in the Phase 1/2 trial for your PD-1. I guess the term suspended can mean a number of different things. Thanks..

So, Cory, this is Barry. I'll answer the first couple of questions about the NCCN Guidelines. So, the easier one is they've indicated that they'll release some time in 2017 maybe over the next first six months of 2017 guidelines for polycythemia vera and essential thrombocythemia.

The first question about whether – so we're just very positive about the NCCN, their approach to myelofibrosis and it reinforces our clinical data. We already have approval in patients who have intermediate 1 to high risk patients.

And there's really very few patients in the low-risk category, maybe 10% of the patients there, recommendation was symptomatic patients that had low-risk. So, we think that represents a small patient population..

Cory, hi. It's Steven Stein. So, thanks for your question related to 1210. The ClinicalTrials.gov listing actually says active, not recruiting. As of October 21 this year, we notified investigators that enrollment of new subjects to the Phase 1 trial of 1210 had been placed on-hold in order to perform a thorough assessment of the compound's profile.

I'm not going to be able today to give you any more details on this as we are in the midst of that review of that compound's profile..

Okay. Thank you..

Thank you. Our next question comes from Michael Schmidt with Leerink Partners. Please state your question..

Hey good morning and thanks for taking my questions. I had two on Jakafi.

A commercial question in terms of sequential growth, could you break out inventory versus price versus volume growth? And then, the second question is, as we're awaiting results from Gilead's momelotinib trials in MF later this quarter, can you give us a sense of how you think about your competitive position in MF, in particular, in patients that have anemia at baseline oral transfusion dependent, and how is Jakafi used in those patients for example? Thank you..

So, for your first question, Josh (sic) [Michael] (23:12) so all of the – so, there was no pricing in Q2 versus Q3. It was the same wholesale acquisition price and, in fact, there was very little inventory movement, one way or the other. So, the 8% growth quarter-over-quarter was almost entirely demand.

Your second question related to momelotinib, we think the clinical profile of Jakafi stands up very well to any compound in the treatment of myelofibrosis, remember they're only going after an indication in myelofibrosis have no polycythemia vera indication. In terms of anemia, we'll see what their data reports out.

But we know from further analysis of our COMFORT trials that patients that came in with anemia or experienced anemia while on Jakafi, in fact, it's still benefited from the drug and still had an improved survival advantage versus patients who did not receive Jakafi.

So, we think it's a compelling clinical profile for the drug and we'll see what happens when they report out their data sometime in the future..

Great. Thank you..

Our next question comes from Josh Schimmer with Piper Jaffray. Please state your question..

Yeah. Thanks for taking the question.

First, you had indicated a substantial increased in R&D next year, I wonder if there's any way to quantify that ahead of your guidance? As well, as you think about advancing epacadostat into additional Phase 3 solid tumors settings, when do you think you'll have adequate data to inform those decisions and what kind of bandwidth do you expect to have in the R&D budget to accommodate multiple simultaneous Phase 3 programs? Thanks..

Okay, so I'll answer the first part of your question.

In terms of the R&D for next year, we are not going to quantify, what substantial means, is rest assured that it will go up from where it is today because there's some phasing and some shifting from this year into next year, into the R&D and Hervé is going to answer your second part of your question..

Yes. I mean, the reason why we spoke about the increase on next year is because as you saw in Q3, there were a number of expenses that we were maybe planning to see happening during the next few months that have been moved into next year.

So, we wanted to make sure everybody understood that, in fact, the intensity of the development program is not slowing down at all. We have multiple projects that are starting.

And in the case of epacadostat as I have said, I mean we would be open to multiple Phase 3 studies when the data is available, and we have the resources to do that, and we would not slowdown in any way the program for epacadostat based on budget impacting.

We are able now with the strength of our top line growth coming from multiple sources to sustain an effort for multiple Phase 3 over a period of years. So, that's really the picture we have.

And the comment about next year was just to make sure that people understood that the way the Q3 R&D budget has been evolving is not something that you can trend for the next quarters. It will probably go through a rebound over the next few quarters..

Does that mean that you're not looking at this point to manage the business for bottom line growth, but more for R&D investment and capital allocation, or how do you think about or how do you see (26:50) bottom line?.

I mean that's what I was trying to say in my introduction. I think it's fundamentally important is that we are watching the cash flow very carefully. So, that's something that is truly important that we can finance our own investments in our own research by ourselves.

And then we are looking at every opportunity to create value through product development. So, if we see Phase 3 opportunities that are reasonable, we would do them, even if it has an impact on the short-term profitability over the next few quarters, because it's absolutely clear to us that it's the best interest of all our investors.

And we are in a phase in cancer discovery, in cancer development, where we can see that opportunities are available today and maybe, they will not be there tomorrow. So, we will be looking at a case-by-case on the quality of the assets that we have in our pipeline and when we see opportunity to develop them, we will do that..

Yeah. Thank you..

Out next question comes from Ying Huang with Bank of America Merrill Lynch. Please, state your question..

Good morning. Thanks for taking my questions. My first one is regarding to the PD-1 enrollment suspension. Hypothetically, if you have to discontinue PD-1, I wonder what you could do with the GITR and OX40 program.

Do you need to seek another PD-1 to combine with those IO assets? And then, secondly, I want to ask about a potential event (28:26) strategy for non-small cell lung cancer.

We have seen that the PD-1 antibodies are quickly becoming a first-line therapy in non-small cell lung cancer and we know that from your Phase 1 data, epacadostat as IDO1 inhibitor does not have activity in experienced patients who have already had PD-1 treatment.

So, in that case, how would you develop IDO1 inhibitor in non-small cell lung cancer? Thank you..

Ying, hi. It's Steven Stein, thanks for your question. So, firstly, as regards, PD-1 1210, that is an enrollment hold on new patients as we perform an assessment of the compound's profile in totality. We have made no further decisions related to the compound. I take as your question was a hypothetical.

But going forward, across programs, including GITR, OX40, et cetera, we will look at multiple potential partners in terms of PD-1s and PD-L1s. In terms of non-small cell lung cancer, you're right. It's a dynamic field that change rapidly.

Certainly in the first-line setting, testing for a biomarker and levels of expression look to be important for PD-1 therapies and then the chemotherapy combinations as well.

In terms of our own data in lung cancer that we're busy gathering at the moment across our collaborations, we will have patients and many patients who have not experienced any immunotherapy yet. So, we are positioned to be able to answer the question of whether or not we add to PD-1 activity in those settings.

We're perfectly positioned to answer that question actually..

Thank you, Steve..

Our next question comes from Ian Somaiya with BMO Capital. Please state your question..

Thanks. Just had a couple of questions. First one on Jakafi. I guess after having five years of the myelofibrosis market all to yourselves, just trying to get a better understanding of what the future growth opportunity is within that indication.

And how we should think about momelotinib if the Phase 1/2 data is reflective of the drugs commercial profile? And then secondly on IDO, Steven, Reid, maybe you could just speak to how predictive melanoma data has been when considering success in solid tumors? I know you can't speak to your own data, but maybe just the IO field overall whether it's marketed drugs or other drugs in development that would just guide us to how to think about how other drugs' success in melanoma and whether there were specific tumor types that tended to respond similarly?.

Hi. It's Barry. So, to answer your first question about Jakafi's growth, well, the way we look at it is that we really only penetrated myelofibrosis about one-third of the prevalent patient population. So, we think we have an upside there. In terms of, if momelotinib comes to market, there's a couple different scenarios.

One is that they in fact have a second line indication after Jakafi, and we really don't think that this is going to have an impact on us. If they come to market in a frontline setting, where Jakafi is currently approved, in the way I think about it is that we have long-term data with long-term spleen response.

We have improved symptoms, and we have an overall survival advantage, and we don't cause neurotoxicity. So, I think our competitive profile again will match up very well with Jakafi.

And we continue to see not only are we adding more patients every single quarter, just like we did this quarter in myelofibrosis, but in fact, those patients continue to benefit for a long time on Jakafi..

Yeah. Ian, this is Reid. I'll take your second question. I think as a field we've come to appreciate that melanoma is a very attractive proving ground to test immune-based therapies. And that's true across all classes. It is a more inflamed tumor type.

So, there's an active component of T-cell that certainly has a high mutational burden, and all those things lend itself to being perhaps a lower bar, if you will, for immune-based therapies. Exactly how that predicts response across other tumor types or whether it does, is probably a class-specific question.

It certainly has shed new light I think from the field to understand which other tumor types may also harbor some of those characteristics of an inflamed phenotype, and we can think about tumor types like bladder, lung, head and neck, renal cell, all in a new light because of the groundbreaking work that's happened in melanoma.

As we look at the emerging IDO data, certainly, the signals that we reported at ESMO that formed the basis of our Phase 3 ECHO-301 program are important, I think, to having a de-risking of the (33:42) melanoma.

How or whether that translates to other tumor types is all going to be dependent on the data that we're generating, but it, I would say, increases our confidence, doesn't decrease our confidence certainly.

And coupled with the safety profile, if we think about the emerging doublet landscape and some of these other tumor types, unattractive safety profile is going to be more, not less important as these therapies move into early line and frontline settings. So, I think we're encouraged based on those data.

We're excited by the program, but we still have to generate the data to speak precisely to what the opportunity may be outside of melanoma..

Thank you. Our next question comes from Simos Simeonidis with RBC Capital Markets. Please state your question..

Good morning, guys. Thanks for taking the question. Just to clarify in terms of news flow, what we can expect for epacadostat announcements. You mentioned that we're going to see additional proof-of-concept data sometime first half of next year.

But is it still the case that we may see an announcement or announcements about your plans of which tumor types you may go into Phase 3 earlier than that? And secondly, could it be the case where you can have multiple announcements, so for example, you can say, we're going to go into lung and then a month later, you say we're going to go into this other tumor type or will it all be one announcement for your Phase 3 plan?.

Okay. Hervé here. Let me try to take that. I mean we have tried to describe it in the past and we are precisely where – the way we describe it which is, obviously, is the disclosure of the data in conferences is not entirely under our control, because the date of these conferences are set with large intervals in between.

If we are at the point of making a decision or making a decision to go to Phase 3, we think it's an event that should be disclosed. So, we would, at this time, announce it as we have done, I think, if I remember well in the case of the melanoma study. And that's really what's driving the process.

I don't think we would be in a position where all the data from all the Phase 2 are going to be available at the same time. In fact, we are just starting some new indication in some of this combination. So, you cannot expect that all of these studies are going to close at one point and then, booms the whole set of data will be available.

I think it will be more in batches as we are progressing through the first half of next year and that's – I think, that's really the situation we are facing here..

Okay. Perfect.

And, finally, has there been any impact in your Phase 2 trials by the durvalumab partial hold?.

Hi. It's Steven Stein. So, in terms of head and neck cancer and what's happened there, it's something we were aware of. We obviously have a clinical collaboration with AstraZeneca.

The impact on the protocols will involve wording changes for people to exercise appropriate caution for things like, for example, if the tumor is close to a major vessel, in addition, if there's an underlying bleeding disorder. But in terms of our actual protocols and program, that continues unabated.

It's just learnings from their experience, and an avoidance to try and have that toxicity not happen on our program..

Great. Thank you..

Our next question comes from Geoff Meacham with Barclays. Please state your question..

Hi, all. This is Evan Seigerman on for Geoff. Thanks for taking my question. Just a follow-up on kind of the IDO timelines in lung. So, I believe last week Merck mentioned that it would be in a position to make kind of the go/no-go decision on Phase 3 by mid-2017.

Is this still in line with your assumptions? And how often and how much do you look up the data on an ongoing basis to help you make this choice? Thank you..

Yeah. As we said – I would take that one again. As we said, the ability to make a decision is not just based on the response rate data. It's based on situational response.

It's based on the biomarker, specifically in lung cancer where, as you know, things have changed a little bit over the past few months with new emerging data from PD-1 as the single agent. So, I think Merck comment about mid-2017, we speak about the first half of 2017, so that's probably very much of overlapping from that standpoint.

We don't know exactly when it would be because, as I said, I mean this is a data that is emerging. The database that will be sort of populated to make the decision with the full analysis is not yet populated, so we don't have access to that data with a full set of biomarker, situational response and response rate yet.

And when we have it, is really where we would be able to move to the next step..

Great. Thanks for taking the question. I appreciate it..

Our next question comes from Eric Schmidt with Cowen & Company. Please state your question..

Good morning. Another question on epacadostat, I guess, for Hervé.

From the time you would make a go decision on a pivotal study, how long would it take to actually start such a trial? And would that change if you were doing it with or without a partner? I ask because, I think, it took a good six months to nine months in melanoma, and I'm wondering if you could shorten that timeline..

Yeah. I think the decision to work with a partner or not is really something that we are looking at this in a natural way that we tend to like to work with a partner. It has a small financial impact on the cost of the study, but it's also a way to learn and benefit from their own scientific understanding of their own products.

So there – it's not just a financial benefit of working with a partner. There is a little bit of a shared scientific information. If for any reason, a partner would rather not be part of the study, which could happen for budget reason or for any other sort of external reason, we are always open to do the study by ourselves.

In terms of the timing, I think, last time the announcement was made at the point where we were in the planning stage, so maybe it took a little bit of time to go through the entire planning, protocol writing then, execution.

In general, what we plan to see the window between the decision to do a Phase 3 and the first patient in the Phase 3 to be less than six months, I mean that would be an industry standard..

Thank you..

Our next question comes from Liisa Bayko with JMP Securities. Please state your question..

Hi there. I was wondering if we could talk a little bit about R&D. I know you've increased how much you're (41:16), just curious where you're spending, where you hadn't accounted before where you're placing more dollars. Thank you..

On the component of the R&D spending, I mean, we are a company that is fully integrated. So, we have a relatively large team working in chemistry and biology and doing discovery every day. So, that's a piece of it.

I don't know if we have given details on the split between the different cost structure, but you can imagine that that part is mostly internally cost. So, they are basically head count that are working on our projects.

And then on the D side, the development side, Steven Stein's group, we have a mix of internal cost, so we have a team of people that has been increased fairly substantially over the past three years. And we have obviously number of cost that are study related.

So, they are directly attached to the number of patients that we are accruing in our studies. So, that's sort of the way it works. So, what it gives us is some flexibility understanding depending on the cycle of studies.

So, as we discussed earlier, if we were initiating a number of Phase 3 studies, we could do it, we have the infrastructure to do it and that would increase the external cost attached to this Phase 3 study. And if we have less concomitant studies ongoing at some point in time, then the external cost can go down.

And we have created in our system the flexibility to do that. The growth of our current R&D budget is mostly driven by the external cost related to the study, as we have now built a team that is of a good size to be able to manage this project. So, I guess that's what I can say about the components of the R&D budget..

Great. And then, just kind of the two programs that don't get as much attention, that's GVHD and alopecia. Can you just remind us of the dosing and sort of briefly what are you looking for in the data to show that there's a strong signal? Thanks..

Yeah. Hi. It's Steven Stein answering your question. On graft-versus-host disease there are a few entities there. There's acute graft-versus-host disease and chronic graft-versus-host disease, and then there's steroid-refractory components and then there's a first-line entity in acute that's not yet steroid-refractory.

So, you just have to be careful about the entities you're talking about, and the clinical manifestations in each of those can be different. And because of acuity of disease and needing to control it early that can also mean slightly different things. We have not yet disclosed the dosing we're using in any of these programs yet.

But when the study starts and go up on ClinicalTrials.gov, you know more information will be available. But they're not – they're in keeping of what we know about ruxolitinib's profile and what it can do.

For alopecia areata, just to remind you, that's a topical ruxolitinib formulation, a cream and would need going forward potentially more dose range and work to work out exactly the dose to deliver there..

Okay. And then, just a final question. Any insights you can give us on baricitinib, obviously it's a large market opportunity and I think the ranges out there are pretty broad.

Has Lilly kind of provided any kind of guidance on how they're thinking about competing in that market? Is there going to be a price to take share strategy or more of a premium pricing, how should we think about where it falls into the regimens available? Thanks..

Thanks. Hervé here. Thanks for the question. It's difficult to answer because our partner Lilly is really driving a lot of the strategy for the launch and they have not been communicating, obviously, all the details of their strategy. So, it will not be appropriate for me to speak about it.

What we see that the profile of baricitinib from the multiple Phase 3 studies that have been performed is certainly very good when compared to the TNS, so that's certainly something that will be core to the strategy of the product because as far as the medical profile is driving a lot of the decision that will be made there.

We know the review process is ongoing and the target date that has been discussed is early next year. So, that's really what we can say on baricitinib..

Okay. Thanks a lot for the question..

Thank you. Our next question comes from Brian Abrahams with Jefferies. Please state your question..

Hi. Thanks for taking my question and congrats on the strong quarter. On 2016 Jakafi growth, wonder if you can talk about the drivers for fourth quarter growth.

I think based on the midpoint of your guidance, it looks like you're expecting both absolute and percentage quarter-over-quarter increase to be less in fourth quarter versus third quarter, as compared to third quarter versus second quarter, just by a price increase that you took at the end of the third quarter.

It sounds like there weren't any onetime factors that contributed to third quarter growth. So, I'm just wondering if you are expecting maybe lesser pricing pull through, perhaps, a slight waning of demand growth or maybe you're just being conservative.

And then separately on the development side, where do you foresee epacadostat potentially fitting in relative to checkpoint plus chemo combos, and just wondering if you could potentially move into – straight into any Phase 3s on top of chemo and a PD-1, if you wanted to go that route, or would you need additional Phase 2 work before you took that step? Thanks..

Thanks, Brian. This is Barry. I'll answer the first question. We think it's prudent. Our guidance going forward $850 million represents a 5% quarter-over-quarter growth and goes up to 7% quarter-over-quarter growth at $855 million. So, we think that's good.

Mostly, the fourth quarter is one of those quarters that you don't know exactly what's going to happen. Lots of vacation days and time off for healthcare professionals and for our staff in November and December. And historically, Jakafi has had very good fourth quarters and some soft fourth quarters. So, that's why we're putting guidance out like that.

But we still have lots of enthusiasm for continued growth in both MS and PD..

Ron, hi. It's Steven Stein. Related to the chemotherapy question both in combination with checkpoint inhibitors, there are at least two questions that we will answer in our clinical program going forward. One is does a PD-1 or PD-L1 plus IDO perform similarly or better to a PD-1 or PD-L1 combo plus chemo.

And then the other one we're very interested in answering and will begin clinical work shortly is adding IDO to a chemotherapy combination in multiple different histologies and multiple different chemotherapy combinations. There's a lot of good signs there around what chemotherapy can potentially do in terms of neoantigen release, et cetera.

But that latter question, we still need more clinical work to answer to get to meet your question.

In terms of the tolerability profile, that's something else which we'll, obviously, carefully examine because the PD-1 plus IDO combo, as you know, and we've just presented updated data at ESMO, very well tolerated and then a different tolerance for a chemotherapy combination. So to be continued and to be answered over the ensuing year..

Thanks. Very helpful..

Our next question comes from Reni Benjamin with Raymond James. Please state your question..

Hi. Good morning. Thanks for taking the questions, and congratulations on a great quarter.

Maybe just going back to epacadostat, can you give us a sense as to what studies we might see first? And is it as easy as kind of going back and looking at when these studies had started or are there other different enrollment challenges that are taking place with a variety of studies? The other question is again related to the PD-1 inhibitor.

Steve, did enrollment complete, and now you're assessing the efficacy of the drug or was there some sort of signal that forced you to stop mid-enrollment? And, I guess, just a high level question for Hervé.

Just given the current climate regarding price increases, can you maybe talk a little bit about how you are planning to or handling this going forward? And are there any rumblings from pairs, or does that really just happen once there is a competitor on the market? Thanks..

Ren, hi. It's Steven Stein. I'll take your first two questions, then hand it over to Hervé. The first one I'm not going to answer satisfactory for you because it depends on histology and when they come in, in terms of the data set. We will and we've said repeatedly across our collaborations, we're studying more than a dozen tumors.

We will enroll north of 600 patients this year and have very healthy cohorts for each of those to analyze. Some areas are more competitive than others. These are known areas like lung cancer can be more competitive than other histologies. But I'm not going to comment as to what datasets will come in first before others.

And as Hervé said earlier, we'll present them appropriately. In terms of your question related our PD-1 1210 inhibitor, the dose escalation phase is completed, and we have information to make decisions on what to go forward in terms of dose expansion, and that's what we're looking at the totality of the profile at the moment. I'll hand it to Hervé..

Yeah. No, the question about the climate and price, I think again I mean back to what I said at the beginning of the call, I think, our view is that innovation is what creates value. It creates value for society, it creates value for patients obviously first by where we can help, and you see that now.

You see a number of tumor type where basically at diagnosis just a few years ago people were looking at palliative way to treat these patients and where now there are optionalities to potentially have some curative of very long-term responses, and that's really what's driving most – all of our efforts in bringing this new drugs to market.

What it does to society is an incredible amount of savings on the cost of treating cancer. And that's really where the economics work really, really well, is that today most of the cost of treating cancer, 80% of it in the U.S. and around the same number in Europe are not coming from medicines.

They're coming from the rest of the cost in surgery and palliative care, in radiation therapy, et cetera, et cetera.

So, the model we are pursuing is the model that would be, over time, obviously building for us an important source of new revenues through innovative products and at the same time, being able to make it in such a way where the healthcare system will benefit from this innovation. And we see that.

I mean, I know there is a lot of noise about the way people look at some of the cost issues, but the reality is that we see already that when products are truly effective, they are in fact cost savings for the healthcare system. In the case of Jakafi and myelofibrosis, it's a situation where we are in a position where the coverage in the U.S.

is very broad, and we don't see a lot of hurdles there. And obviously, it's based on what Barry was describing where the symptomatic benefit and now the survival benefit is what established for this product..

Thank you..

Our next question comes from Peter Lawson with SunTrust Robinson Humphrey. Please state your question..

Just I guess a question for Barry or Steven, just around the ASH data, what could we see – it looks like what Jakafi five-year data GVHD, any color around that data?.

Yeah. Hi, Peter. It's Steven Stein. So, as you know, the American Society of Hematology abstract is published in the next 24 hours, 48 hours and are embargoed until then.

So, I can't give you color around the data other than to point to you what we said in the actual presentation, which is the pooled analysis of COMFORT-I and COMFORT-II overall survival data in myelofibrosis will be presented as part of our numerous presentations at ASH.

And then additionally, 39110, our selective JAK1 inhibitor proof-of-concept study in graft-versus-host disease will also be presented there. So, as soon as the abstracts are live, you can look at the data set, and then the actual presentations. Can't provide more color at this point..

Got you.

And then, just on the earlier IO pipeline, GITR and OX40, when can we see data in those molecules?.

It's Steven again. The GITR only dosed the second half of this year and OX40 is about to dose. So, we will be conducting those studies as efficiently as possible, but you are looking a year plus ahead to see data related to the Phase 1 experience for those compounds. Thanks..

Our next questions comes from Alethia Young with Credit Suisse. Please state your question..

Hey, guys. Thanks for squeezing me in. Congrats on the quarter.

And it's probably for Barry, as it relates for Jakafi, with the broader guidelines, is it a matter of like finding the patients or just educating the doctors who are reviewing the charts around that opportunity?.

Sure. So, for myelofibrosis, it is sometimes difficult. Myelofibrosis patients obviously are seen by hematologist/oncologist in the community and they may not see them as frequently as they do some metastatic lung cancer patients for example.

So, to recognize that these patients – that patient that they might call low risk, let's say, but are actually high risk and they need to be treated right away, sometimes that's very difficult for them to assess.

So, our educational efforts – some of our educational efforts are focused on that to make sure that physicians who are treating patients with myelofibrosis are appropriately assessing the risk that these patients are under and the NCCN Guidelines reinforce that..

And then just on the momelotinib and looking at your longer term data in COMFORT, do you think that like the long-term data is something that is important to doctors admitting that let's say, a bulk case (57:20) scenario comes out from momelotinib where the data looks like it supports first-line therapy.

Do you think that like having that longer term data is something that's very important and relevant in momelotinib would have to be held to the same standard?.

Yes. Exactly. That's why I keep on saying our clinical profile matches up very well. We have long-term spleen response data, long-term safety data. We improved symptoms to a great degree for these patients. And in fact, we have a 30% reduction in the risk of debt.

And there is no endpoint in the momelotinib studies either SIMPLIFY-1 or SIMPLIFY-2 for overall survival. So, we think we're in good shape..

Great. Thanks..

Thank you. And our final question comes from Michael Schmidt with Leerink Partners. Please state your question..

Hey guys. Thanks for taking the follow-up. I had a couple additional questions. One on duration of therapy in MF, in clinical practice.

Has that been similar to what's been seen in long-term follow-up of the COMFORT trials?.

Well, so for myelofibrosis in the COMFORT trials, what you're talking about is that 50% of patients stayed on for three years. So, while in the everyday setting, not in the clinical trial setting, it's less than that, but it's hard to predict.

Patients stay on therapy for a long time, we have some percentage of patients who stay on therapy for a very long time and benefit greatly from it. So, we've never really talked about the true persistency, but it's more than 12 months..

Great. Thanks.

And then, one on the FGFR inhibitor, the question there is what are the Phase 2 studies that you have initiated there, whether those could be registration-enabling?.

Michael, hi. It's Steven Stein responding. So, there are robust large Phase 2 studies of approximately 100 patients each. They'll capture response rates along with duration of response. There are multiple precedence, both in the United States and in Europe for approvals, with good high response rates that are durable. And the U.S.

would be under accelerated approval conditions, in Europe, under conditional approval conditions, for which you would then have to do confirmatory studies. So, it'll be a review issue based on the efficacy data we see, but there is potential..

Okay. And one on capmatinib, the MET-inhibitor with Novartis, where it looks like they're expecting filing in 2018. I was wondering whether it's known, which specific indication that could be in? Is that a monotherapy approach in MET-selected lung cancer patients or potentially a combination with EGFR inhibitors? Thank you..

Hervé here. I think our understanding that it would be in lung cancer, that's what Novartis has said, yes..

Any more color on the royalties and potential milestones from that program?.

I think what we have said on the royalties is that they would be in the teens – low teens. So, 12% to 14%. And there is a milestone attached to different events like approval, et cetera, that we have not disclosed yet..

Perfect. Thank you, and congrats again on the quarter..

Okay..

Thank you. I'll now turn the floor back over to Mr. Hervé Hoppenot for closing remarks. Thank you..

Okay. Thank you. Thank you for your time today and for your questions. We look forward to seeing some of you at the ASH Conference next month. But for now, we thank you, again, for your participation in the call today. Thank you and good-bye..

This concludes today's call. All parties may disconnect. Have a great day..