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 - Incyte Corp..

Cory W. Kasimov - JPMorgan Securities LLC Geoff Meacham - Barclays Capital, Inc. Eric Schmidt - Cowen & Co. LLC Salveen Richter - Goldman Sachs & Co. LLC Ying Huang - Bank of America Merrill Lynch Brian Abrahams - RBC Capital Markets LLC Alethia Young - Credit Suisse Securities (USA) LLC M.

Ian Somaiya - BMO Capital Markets (United States) Yu Katherine Xu - William Blair & Co. LLC Carter Gould - UBS Securities LLC Michael Schmidt - Leerink Partners LLC.

Greetings and welcome to the Incyte Corporation Third Quarter 2017 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mike Booth, Vice President of Investor Relations. Please go ahead..

Thank you, Diego. Good morning and welcome to Incyte's third quarter 2017 earnings conference call and webcast. The slides used today are available for download on the Investors section of incyte.com. And I'm joined on the call today by Hervé, Barry, Steven, Dave, and Reid.

We would like to remind you that some of the statements made during the call today are forward-looking statements, including statements regarding our expectations for 2017 guidance, the commercialization of our products, and our development plans for the compounds in our pipeline, as well as the development plans for our collaboration partners.

These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our 10-Q for the quarter ended June 30, 2017 and from time-to-time in our other SEC documents. I'd now like to pass the call to Hervé for his introductory remarks..

Thank you, Mike, and good morning, everyone. So I'm very pleased to report another very successful quarter at Incyte with dynamic revenue growth, driven by sales of both Jakafi and Iclusig, and with significant progress in multiple places in our clinical development portfolio. So let's begin with Q3 revenue.

So you can see on slide 5, remarkable growth in product-related revenue over the past five years. So, that's revenue without the milestone, which has seen a compounded annual growth rate of more than 50%.

Five years ago, Incyte's product-related revenue was made of Jakafi's sales and Jakavi royalties in myelofibrosis and we have come a long way since then. Jakafi sales and royalties remains a key component of our revenue growth, and Iclusig sales and Olumiant royalties are now adding to it.

We believe Incyte is in a unique position, combining strong revenue growth with a cutting edge portfolio of project at every stage of development. And I will now spend a few minutes in our late stage development portfolio. So, slide 6 summarizes the late-stage project and the indication being pursued.

Pivotal program for ruxolitinib are open in both steroid refractory GVHD and essential thrombocythemia, and itacitinib is also in the pivotal program for GVHD. Recruitment is proceeding well in our two key FGFR trial and our PI 3-kinase delta program is also moving forward where we are opening trial in four different non-Hodgkin's lymphomas.

And of course, the ECHO program for epacadostat continues to progress and we are looking forward to the readout of the pivotal ECHO-301 trial in melanoma expected in the first half of 2018.

I believe that over the next five years, these five listed product candidates have the potential to further accelerate our revenue growth and we look forward to reporting on future developments.

So, on slide 7, you see our leadership position in immuno-oncology is driven by our roots in immunology research; and we consider our ongoing epacadostat plus PD-1 collaboration to be only the beginning for us in this field.

Our discovery and development teams now have many candidates in the clinic to explore the I-O space, such as IDO1, obviously, arginase, JAK1, bromodomain, and PI 3-kinase delta inhibitors, as well as our GITR and OX40 antagonist.

We have recently announced two new collaborations that we believe will serve to further enhance our immuno-oncology portfolio, and I'll touch on this on slides 8 and 9.

On slide 8, you can see that we have agreed with AstraZeneca to expand our existing clinical collaboration and move into Phase 3 development in a trial which will study epacadostat plus durvalumab in patients with non-small cell lung cancer.

This study builds on AstraZeneca's recent success in the PACIFIC study, and the objective of the study is to establish a new standard of care in the same patient population as was studied in PACIFIC. We will share the cost of the trial with AstraZeneca, and the trial is expected to begin in the first half of next year.

We are also excited to announce, last week, we did – that we have entered into a global collaboration and license agreement with MacroGenics for its PD-1 antogonist MGA012, which is already in the clinic.

Under the agreement, Incyte will hold exclusive world-wide development and commercialization rights in all indications, and Incyte will record all global sales for the compound.

As you can see here on slide 9, we have a total of seven in-house assets today that has the potential to be combined with the PD-1 antagonist and are currently in Phase 1 PD-1 combination trial, and we intend to proceed into combination trial with MGA012 as soon as possible.

Yet, what is different about this collaboration is that the agreement also grants MacroGenics the right to develop MGA012 in combination with its own pipeline. And we believe that this innovative collaboration structure with MacroGenics provides us with significant optionality and may increase the compounds' commercial potential. Now on slide 10.

Drug discovery remains central at Incyte and we have successfully added two large molecule discovery alliances to our small molecule expertise, one for monoclonal and one for bispecific antibody. These three platforms are expected to enable us to go after a multitude of future target.

We have five late-stage program within our development portfolio and it originate for what could potentially be a good number of new products and new indication approval, we now have operation in the U.S., Europe and Japan as we continue to build Incyte into a world-class biopharmaceutical company.

As part of this process, we are also very pleased to have Jackie Fouse join our Board of Directors. Jackie has extensive experience in oncology and in the biopharma field and she will be a wonderful addition to our team. With that, I'll pass the call to Barry for an update on Jakafi..

Thank you, Hervé, and good morning, everyone. Jakafi net sales were strong in Q3 of 2017 at $304 million, a 36% increase over Q3 2016 and a 10% increase over the second quarter of this year. Jakafi's performance in the quarter was driven by strong patient demand for both indications.

We believe this demonstrates our approach of educating physicians on the benefits of intervening early with Jakafi therapy and supporting patients through our educational and awareness initiatives, continues to be very effective.

We did see some inventory builds in Q3 which is now slightly above the high-end of our typical range of two and a half to three weeks. In dollar amounts, this inventory represents approximately $5 million of net sales.

As a result of our strong sales growth, we are revising our full-year 2017 net product revenue guidance for Jakafi from a range of $1.090 billion to $1.120 billion to a new range of $1.125 billion to $1.135 billion. I'd like to take a moment to remind everyone of the long-term revenue potential of Jakafi beyond MF and PD.

Jakafi also has potential to benefit patients with graft-versus-host disease an underserved community of patients, who may have been cured of their cancer by a stem cell transplant, only to suffer a side effect of that treatment resulting in GVHD. Data from REACH1 in steroid-refractory acute GVHD are expected in the first half of next year.

And if the results are positive, we expect to be able to file an sNDA for Jakafi in this indication in 2018. We have also opened a pivotal study in patients with essential thrombocythemia.

Jakafi has already transformed the lives of thousands of patients with MPNs, and we continue to work with doctors, patients, patient advocacy groups and the FDA to further expand access to those who may be able to benefit from this treatment. With that, I'll pass along the call to Steven for a clinical update..

Thanks, Barry, and good morning, everyone. On Slide 15, I'd like to start by reminding you of the scope of our current pivotal program with epacadostat. As you are all aware, ECHO-301 is ongoing in patients with unresectable or metastatic melanoma. The trial has completed enrollment and we are now waiting for events to accrue.

We remain on track to announce results in the first half of 2018. Earlier this year, we announced that we would be expanding the epacadostat program to include pivotal trials in four additional tumor types in combination with either Merck's pembrolizumab or Bristol's nivolumab. These studies are all on track to begin enrollment by the end of 2017.

As Hervé mentioned, we were pleased to announce that we are expanding further with a pivotal study in combination with AstraZeneca's durvalumab in patients with Stage III non-small cell lung cancer.

Our clinical development team along with our partners at Merck and Bristol are working hard to initiate the additional trials of epacadostat in combination with either pembrolizumab or nivolumab.

The details of the renal and both lung studies with pembrolizumab are now available on ct.gov and we've summarized the trial schema for these studies on this slide, slide 16. All the three trials will be conducted in patients that are treatment naïve for their advanced disease.

ECHO-302 will study the combination of epacadostat and pembrolizumab in patients with renal cell carcinoma versus standard of care. In this case, either Sutent or Votrient in a simple two arm design. ECHO-305 will study the combination of epacadostat and pembrolizumab in patients with PD-L1 high expression lung cancer versus pembrolizumab monotherapy.

Pembrolizumab monotherapy is the care standard in this population. ECHO-306 will evaluate patients with lung cancer irrespective of their PD-L1 status. The evolving care standard in this population is pembrolizumab plus platinum-doublet chemotherapy. And therefore, this is used as the comparator arm.

We are also taking the opportunity in this study to investigate the possibility of a chemotherapy-free combination. And so we are not only including a triplet arm of epacadostat plus pembrolizumab plus chemotherapy, but also a third arm of epacadostat plus pembrolizumab.

The co-primary endpoints for all three trials will be progression-free survival and overall survival. Next, I'd like to spend a few minutes speaking about our other immuno-oncology assets and the significant progress we are making here. Our GITR agonist, INCAGN1876, and our OX40 agonist, INCAGN1949, have both completed dose escalation.

Each of these candidates is now moving ahead in multiple combination cohorts. INCAGN1876 is in combination with epacadostat and pembrolizumab, and separately in combinations with nivolumab monotherapy or nivolumab plus ipilimumab. INCAGN1949 is currently progressing into combinations with either nivolumab monotherapy or nivolumab plus ipilimumab.

Our first in class arginase inhibitor INCB1158 is continuing with dose escalation and has recently moved into combination studies with pembrolizumab. We also plan to evaluate INCB1158 in both epacadostat and chemotherapy-based combinations. On slide 18, outside of immuno-oncology, we have what we believe is an exciting portfolio of targeted therapies.

Over the last year, we have put together a broad program to study the effects of JAK inhibition for patients suffering from graft-versus-host disease.

The program spans both acute and chronic graft-versus-host disease and will also evaluate various other treatment settings, such as prophylaxis for the condition, patients that are treatment naïve, and patients that are steroid-refractory.

The first pivotal trial of ruxolitinib in graft-versus-host disease, REACH1 is evaluating ruxolitinib in patients with steroid-refractory, acute graft-versus-host disease, and is expected to readout next year. The GRAVITAS-301 study was recently initiated and will evaluate itacitinib in patients with treatment-naïve acute graft-versus-host disease.

On slide 19, I'd like to cover our other two late stage assets. Our selective FGFR1/2/3 inhibitor, INCB54828 is being evaluated in two key programs, one in metastatic bladder cancer, and then other in cholangiocarcinoma. These studies are recruiting well.

Our highly selective PI 3-kinase delta inhibitor, INCB50465 is being studied in a broad program, which includes trials for a number of non-Hodgkin's lymphomas. Our program is additionally investigating dose and scheduling to maintain efficacy, while hopefully ameliorating toxicity. On slide 20, I'll discuss some highlights from our upcoming news flow.

As I've already mentioned, the additional Phase 3 studies with pembrolizumab and nivolumab are on track to begin by the end of this year. Also expected by the end of this year will be the first-in-man data from our lead BRD inhibitor, which will highlight the data we used to determine to prioritize development of INCB57643 over INCB54329.

First-in-man data from our PIM inhibitor, INCB53914 is also expected later this year. Heading into the first half of 2018, we are looking forward to the results of the ECHO-301 study, as well as the results from REACH1, our pivotal study of ruxolitinib in patients with steroid-refractory acute graft-versus-host disease.

Lastly, and following the new go forward decision with AstraZeneca, we expect to initiate a Phase 3 study of epacadostat in combination with durvalumab for the treatment of lung cancer patients in the first half of 2018. We've made significant advances in the clinics so far in 2017, and we have ambitious goals as we head into next year.

We look forward to keeping you updated on our progress. With that, I'll pass the call to Dave, for the financial update..

Thanks, Steven. And good morning, everyone. Our financial performance in the third quarter was very strong. We recorded $382 million of total revenue.

This was comprised of $304 million in Jakafi net product revenue, $18 million in Iclusig net product revenue, $41 million in Jakavi royalties from Novartis, and $3 million in Olumiant royalties from Lilly. In addition, we recorded a $15 million milestone related to the approval of Olumiant in Japan as contract revenue.

Jakafi's net product revenue of $304 million represents 36% growth over the same period at last year. Based on Jakafi's performance for the first nine months of the year, we are increasing our full-year Jakafi net product revenue guidance to a range of $1.125 billion to $1.135 billion.

Our gross-to-net adjustment for the third quarter was approximately 12%. We expect that the total gross-to-net adjustment for the full-year to be approximately 13%. Our cost of product revenue for the quarter was $22 million. This includes the cost of goods sold for Jakafi and Iclusig, the payment of royalties to Novartis on U.S.

Jakafi net sales, and the amortization of acquired product rights related to the Iclusig product acquisition in Europe.

Our R&D expense for the quarter was $270 million, including $23 million in non-cash stock compensation and a $12 million in-process research and development asset impairment charge due to the discontinuation of the Iclusig second-line CML trial that began prior to the acquisition of the European ARIAD operations in 2016.

The remaining increase in R&D expense over the previous quarter was driven by continued progress on the epacadostat Phase 3 studies, the advancement of ruxolitinib GVHD studies, and the expansion of studies in our large molecule programs.

For the full-year, we expect R&D expense to be in a range of $1.250 billion to $1.300 billion, of which approximately $360 million is related to the amended Agenus collaboration, and the Merus, Calithera, and MacroGenics collaborations.

The increase in R&D expense guidance over the prior quarter is primarily related to the $150 million upfront payment under the recently announced license agreement with MacroGenics. Our SG&A expense for the quarter was $91 million, including $12 million in non-stock cash compensation.

We recorded a $16 million net benefit related to the change in the fair market value of the contingent consideration for the Iclusig royalty liability.

This net benefit included $8 million of recurring expense related to the change in the fair market value of the contingent consideration for the Iclusig royalty liability, and a $24 million benefit related to the discontinued Iclusig second-line CML trial as previously mentioned.

As a result, we expect full-year expense related to the change in fair market value of contingent consideration for the Iclusig royalty liability to be in a range of $5 million to $7 million. This is a decrease in expense of the previous guidance last quarter.

Moving on to non-operating expenses, we recorded a $23 million unrealized gain on our long-term investments in Merus and Agenus during the quarter. Looking at the balance sheet, we ended the third quarter with $1.3 billion in cash and marketable securities, and expect to end the year with over a $1.1 billion.

The increase in cash and marketable securities compared to the prior quarter is primarily related to the recent public offering of approximately 5 million shares of our common stock resulting in net proceeds to the company of approximately $650 million. On the final slide, you'll see our full-year guidance.

Incorporating all the previously discussed changes, we now expect a net loss between $290 million and $300 million for the year.

Subtracting the upfront and milestone expenses of approximately $360 million, related to the amended Agenus collaboration, and the Merus, Calithera, and MacroGenics collaborations, our forecast of results for the full-year 2017 would be net income of $60 million to $70 million. To summarize, we are very pleased with our third quarter performance.

We exceeded $1 billion in total revenues years – total revenue year-to date. Our clinical development programs are advancing as planned. We continue to add to our development pipeline. And we have a strong balance sheet to support our continued growth for the long-term. 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 Cory Kasimov with JPMorgan Chase and Company. Please state your question..

Hey, good morning guys. Thanks for taking the questions and nice quarter. So, I have two for you. I guess, first is probably for Steven and it's on the overall strategy for epacadostat in lung cancer.

Now that you've added durvalumab to pembrolizumab and nivolumab in terms of advancing to Phase 3 and each seemed to be going after different segments or combinations in the market and maybe specifically on this front, as it relates to ECHO-306, do you have evidence of additive effects for IDO when added to a PD-1 chemo combo? And then I have one follow-up..

Cory. Hi, it's Steven. Thank you for your question. So, obviously, as you well know and others do, lung cancer incorporates many different settings and different histologies as well.

The whole premise behind immunotherapy has always pointed to the fact that the – that it may – its maximum benefit may be in areas of low disease burden or even in the adjuvant setting, where you have maybe, potentially, micrometastatic disease to beat.

So, our studies encompass the high-expressing PD-L1 population in combination with pembrolizumab monotherapy which is a care standard there.

In the low-expressing settings, the chemotherapy combination with pembrolizumab is felt to be the care standard, despite what happened last week with Merck withdrawing their application in Europe based on KEYNOTE-021G subgroup.

We've always felt that the KEYNOTE-189 data was going to be the gating event, that data will report out way before our study finishes. And so, we obviously incorporating a Phase 3 study in combination there, but also exploring a chemotherapy-free option as well. So, there's three arms that particular study.

If you're asking me, do we have efficacy data in combination with chemotherapy that has enabled us, we have ongoing work looking primarily at the safety with chemotherapy combinations. No, and we have not presented efficacy data with that particular combination yet.

In the adjuvant or early setting, the Stage III non-small cell lung cancer setting building on specific data, which is post-chemotherapy, radiation combination therapy for patients who are either in a complete remission, partial remission, or stable disease, obviously the durvalumab data in PACIFIC was highly encouraging for a progression-free survival disease free survival benefit.

And this is, again, where immunotherapy, as I said upfront, is felt to potentially work best and that is what we explore in there, the combination versus durvalumab alone. Overarching everything that I'm saying is our tolerability profile. As you know, we presented now on a number of occasions with exposure data that now exceeds a year.

We're very comfortable in our tolerability profile. And, again, that should there be the efficacy we want in the adjuvant setting would be a real win to have that sort of tolerability profile. That's our current strategy across lung cancer. We have not yet announced our BMS plans publicly..

Okay. Thank you. And then the second question is for probably Hervé or maybe Steven as well. Can you just discuss the strategic thinking behind the MacroGenics collaborations with their PD-1 inhibitor. What was the primary driving force behind doing this deal? Thanks..

Okay. So, maybe a step back on – in immuno-oncology, what we have seen over the past few years is really the establishment of single agent PD-1 in multiple indication across multiple tumor types across many different companies, in fact. And that has been very steady, it has been making progress over more or less the past five years.

If you remember CTLA-4 was the first mechanism, and then PD-1 more or less took the position of being the single agent leader in multiple indication. What we believe, and that's shared by many, many people, is that the next wave, the next frontier for everybody is how to establish I-O/I-O combinations either with or without chemotherapy, by the way.

But how do we find good combination that will improve the profile of PD-1 alone? We know, in that field, the only existing combination is CTLA-4 and PD-1 and, obviously, with our epacadostat PD-1, we are also trying to establish that across a number of indications.

So, what we see in front of us is a new effort, a new wave of clinical test that will be trying to establish combinations of PD-1 plus other product. And as you saw on the slide we showed a little bit earlier, we have seven of them already in the clinic. It includes very different hypotheses from the scientific standpoint.

So, some of them are large molecule, like GITR and OX40; some of them are smaller – small molecule like arginase, JAK, PI 3-kinase delta, epacadostat. And what we – we're looking at is saying as we are embarking into this new wave of studies, what we would like is to be able to do it with our own PD-1.

We have ongoing studies with pembrolizumab and nivolumab with all of these products.

And with this deal what we will be able to do is initiate in 2018 combination study with each of these seven mechanism; and then, based on what we learned from the biology and the existing data, we'll be able to move this program to the next step of a pivotal study after we have established that. So, what it gives us is flexibility. It gives us speed.

In fact, there is an economic benefit of doing it with your own PD-1 and it could potentially also be beneficial from the – in fact, it certainly will be beneficial to the top line by adding an additional product to our portfolio. And amortizing the cost of development across two products instead of one. So, that was what was driving us.

It's not very different from what we discussed over the past two years. This opportunity came up and we think it's a good product, and we will be able to move quickly to combination trial in 2018..

Good. Thank you for taking the questions..

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

I have a couple. I think for either Steve or Reid.

So, the first one is on epacadostat, I know small numbers based on your Phase 2, but I want to get your perspective on the opportunity in PD-L1-negative patients or in minimal expressers, especially as you ramp up Phase 3 combo studies outside of melanoma? And then on ruxolitinib in GVHD, I know data coming up next year for REACH1, but maybe what would you point to in this indication as a clinically meaningful result either response rate or duration of response and how's this different between the chronic and the acute setting? Thank you..

Geoff, it's Steven. Thanks for your question, and Reid may weigh in after I speak. In terms of your question related to epacadostat in our Phase 2 data in both PD-L1-positive patients and PD-L1-negative, and again we need to be careful in general in terms of which tests we're using whether it's Merck or BMS and what cut-offs we're using.

So, that's just as a general caveat. Obviously, to date, we've presented data in both those populations across multiple tumors. We have some intriguing albeit low numbers to date responses in PD-L1 negatives and we have PD-L1 unknown data which may include both.

And, so, I think the jury is still out on whether we'll be able to further enhance the effect in low expressers in PD-L1 negatives and get T-cells to do what they need to do there.

But that's been tested across the programs including, as you said, in melanoma where there's no selection upfront, there's merely stratification after the fact , and we expect the vast majority of patients in melanoma to be PD-L1 high or positive.

In lung cancer, as we've outlined in the things we put out publicly to date, their selection upfront in both those populations and the question being answered at least in the ECHO-306, is also in combination with chemotherapy. But, all we can point to to date is the data we've shown publicly with some intriguing responses in the negatives.

In terms of ruxolitinib in graft-versus-host disease and across the populations, it's a little bit different for acute versus chronic in terms of what's considered clinically meaningful benefit as well as regulatory benefit.

But for REACH1, there's an established primary endpoint of a Day 28 response rate, which is defined by internationally-defined bone marrow criteria, which will look at that response data. But it has to be coupled with a durability of response as well.

So, in the shorter settings, in the acute setting, you look for example at three-month durability of response data coupled with the primary Day 28 response rates.

In the chronic setting, you look a little bit further out upwards of six months, but it – and it's really the combination of both response, as well as the duration of response for both of those settings. Thank you..

Thanks guys..

Thank you. Our next question comes from Eric Schmidt with Cowen and Company. Please state your question..

Thanks for taking my question. Maybe another one for Steven. It seems like there's increased interest in moving I-O into the adjuvant setting, and I'm wondering if it's too early to talk about epacadostat in such a role and whether you're planning such trials? Thank you..

Yeah. Eric, it's Steven. As I said upfront, in the adjuvant setting, what you're doing in those patients, in that population is treating a potential disease that you can't see so, micro metastatic disease, to try and increase cure rates.

In those settings, it's where, in general, immunotherapy-based approaches are felt to be potentially most beneficial. So, you've seen now, reported out adjuvant melanoma studies with different checkpoint and checkpoint plus CTLA-4 combinations showing benefit already.

So, the next thing to do is in melanoma, if the ECHO-301 data points to it, is to test epacadostat in combination with checkpoint in adjuvant melanoma. And what you've seen us doing in the lung cancer setting is trying to build on the durvalumab data in a Stage III non-small cell lung cancer setting, which has a much higher risk for relapse.

So, many of those patients untreated, unfortunately, will relapse and you saw the very impressive progression-free and disease-free survival data with durvalumab and now looking at the combination with epacadostat to see if we can further enhance that. And then, I'll end by the comment I made earlier. Tolerability is key in an adjuvant population.

These patients are otherwise well, I want to get on with their lives and don't, for the most part, want to suffer, if they can avoid it, any debilitating side effects. So, our tolerability profile here is encouraging. Obviously, it has to be coupled with an efficacy win as well..

Thanks..

Thank you. Our next question comes from Salveen Richter with Goldman Sachs. Please state your question..

Thanks for taking my questions.

With regard to the pipeline, can you provide us with the clinical rationale here for this JAK1 plus osimertinib combination study? And then, when should we expect the pivotal FIGHT and CITADEL programs to reach out?.

metastatic bladder cancer, cholangiocarcinoma, and a rare myeloproliferative neoplasm. All of those entities are driven by genetic mutations involved in the FGFR pathway that are oncogenic and felt to drive those diseases.

In the bladder setting, that's FGFR3; in cholangio, it's FGFR1; and in the myeloproliferative neoplasm, it's an 8p11 translocation. Those studies are ongoing. They're enrolling really, really well despite needing genetic selection. We have been really encouraged by the enrollment. And we should be getting data over the ensuing 24 months.

For the CITADEL program, in general, that's our PI 3-kinase delta inhibitor across different non-Hodgkin's lymphomas, diffuse large B-cell, mantle, marginal and follicular lymphomas, that program is looking at trying to avert toxicity by changing dosing schedule over time. And that is also – will be enrolling patients over the ensuing 24 months.

So, it's a little early to speak about when we'll be seeing pivotal data on those. Thanks..

Thank you..

Thank you. Our next question comes from Ying Huang with Bank of America Merrill Lynch. Please state your question..

Hi. Good morning. Congrats for the quarter and thanks for taking my questions. Specifically, I want to ask about the Phase 3 ECHO-301 primary analysis.

Is it going to be done in all-comers or on PD-L1-positive melanoma patients only? And then, maybe another one for Steve, have you guys enrolled any patients with Stage III non-small cell lung cancer in the ECHO-203 trial in combination with durvalumab? Thank you..

Ying, hi, it's Steven. The Phase 3 ECHO-301 melanoma study is in all-comers. There is stratification for PD-L1 status. So, PD-L1 positive and negative is captured upfront and they'll be balance between the treatment arms for each of those groups.

So, both the standard of care arm of pembrolizumab and the experimental arm of pembrolizumab plus epacadostat will have the same representation proportionally of PD-L1 positives and negatives. So, again, just to be clear, it's a stratification factor, but the primary analysis is in everybody.

In terms of Stage III non-small cell lung cancer patients in the program to date, no we have not enrolled those sorts of patients because of their potential curative nature to date. So, our program is focused to date on latter-stage patients. Thanks..

Thank you..

Thank you. Our next question comes from Brian Abrahams with RBC Capital Markets. Please state your question..

Hi. Thanks for taking my questions, and congrats on the quarter and the continued progress with the pipeline. Couple of questions on the epacadostat pembrolizumab lung cancer Phase 3 designs.

I guess, I'm just wondering if you could talk about any potential dose ranging you might need to do for the chemo study for the epacadostat PD-1 chemo arm? Whether you're looking for superiority or non-inferiority for the chemo-free checkpoint IDO arm versus the checkpoint chemo arm, which epacadostat arm would need to hit to constitute success of that study? And then if you might be able to give us any sense of timelines for a potential interim or full data from that – those recently announced non-small cell lung cancer programs? Thanks..

So, Brian, hi. It's Steven. I'll try and answer all four of your questions. So, the enabling safety work for the chemotherapy combinations has been going on in the background for months now.

The intent is not to have to change dosing at all and use our Phase 3 doses they've been using across the program, and the ones we have announced to date, all at 100 milligrams BID.

So, as long as long as safety stands up to what it's been to date, that's the dose we'll be using in the announced programs for which we have greater than 80% to 90% inhibition of the enzyme, which we've shown in our Phase 1 data. Your question two, all the analyses are superiority in the announced programs to date.

They – all the comparisons of superiority comparisons, there is no non-inferiority comparison in anything we've announced to date.

In terms of success, the studies are all undertaken with equipoise upfront looking at a standard of care, and then compare it to either one or in the other announced study ECHO-306, two different comparator arms, both looking at superiority.

Success will be hitting the endpoints in terms of efficacy that is clinically meaningful and statistically significant for any of those arms, either the chemo-containing or the chemo-free one.

And I think in terms of timelines down the pike, it's really too early given that the studies haven't initiated the ends on the publicly announced ones, in terms of the enrollment numbers, are there for you on ct.gov. And we hope we have the success we had with the melanoma study already in terms of enrollment.

And then, it'll be term – it will be waiting for the endpoints and then so you can do your own calculations there in terms of where – when we may see it. And I think those were all four of your questions..

Indeed. Thanks, Steven..

Thank you. Our next question comes from the Alethia Young with Credit Suisse. Please state your question..

Hey, guys. Thanks for taking my questions. Congrats on the quarter as well. One, just around – just trends you're seeing now that the NCCN guidelines have changed for PV, and just kind of wanted to see kind of how – do you feel like you're kind of in the midpoint of the education process or is there still sufficiently more wood to chop.

And the last one is just philosophically on CTLA-4. Do you think there's a need for better CTLA-4s or is that something you're interested in maybe at your I-O combinations? Thanks..

Okay, Alethia. This is Barry. I'll take the first part of your question about the NCCN guidelines and PV. We continue to grow very nicely in PV, the NCCN guidelines obviously help. As we've said before, that PV total patients continues to grow faster than MF total patient growth, but both MF and PV total patients continue to grow.

The education process continues for PV, but we think it's going very well, and we continue to penetrate the available patient population..

Hi, Alethia. This is Reid. I'll take your question on CTLA-4. I think, obviously, it was the first-in-class mechanism, really, that established immunotherapy and serves as the foundation for the wave that we're in right now. And it's fundamentally limited by its systemic tolerability profile.

But, clearly, it's an efficacious agent and when added to backbone checkpoint inhibitor therapy like PD-1 axis blockade can be highly active and, unfortunately, also highly toxic, at least for some patients with irreversible inflammatory conditions.

So, it's important, I think, for the field that we try to learn from that experience with CTLA-4 and that can come from a few different directions.

One is understanding the importance of selecting targets that have a mechanism of action that's constrained to the tumor microenvironment and not necessarily systematically acting drugs and I think we've seen now a wave of new mechanisms coming into the clinic which are designed to do just that.

Certainly, epacadostat and IDO1 inhibition is one of those mechanisms, but there's many others in our pipeline and in others. I think there's another question as to whether or not we can be better at constraining CTLA-4 activity to the tumor microenvironment through other approaches.

Bristol is taking a few different approaches such as enhancing effect or function of the antibody, trying to mask activity and release it only in the tumor microenvironment through another technology from CytomX. There maybe bispecific approaches to CTLA-4 that could be interesting as well.

There's still a lot we don't know about the basics of why CTLA-4 is active in one cell type it's active in and why it's systemic toxicities are the way they are.

But I think a lot of these approaches are going to design to determine whether there could be a better CTLA-4 antibody and one that is – still contains its tumor-directed efficacy but avoids the systemic toxicity. So, it's a work in progress, but it's absolutely an important one for the field to continue to study..

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

Thanks. Two questions. First on just the MacroGenics PD-1. I'm just trying to understand what the larger goal is.

Just given the ongoing studies with PD-1s whether it's pembrolizumab, Opdivo, or now with durvalumab with epacadostat, your goal is obviously to establish a new standard of care, which would also make it more challenging for you to be able to succeed in those settings with the MacroGenics PD-1.

And, I guess, what I'm trying to understand is the goal of the MacroGenics deal to establish simply new triplets, is that where we should be – how we should be thinking about the future development? And then I had a question on Jakafi..

Okay. Let me try to answer the question about PD-1. Epacadostat is not the key driver of the PD-1 agreement. I know it sounds a little bizarre because obviously epacadostat will be a potential beneficiary of this – having our own PD-1 in the long run.

But the way we were thinking was more of the other six products we have currently in Phase 1 combination trial with pembrolizumab and nivolumab, and how to make that clinical development faster, economically easier and potentially giving us the economic benefit of having our own PD-1.

So, that was really the key driver was not to have some sort of short-term epacadostat impact, but to have an impact on the other six products. We are now moving through the process.

And that could be done by studying the safety studies in 2018, and then where we feel we have information to move forward, where we'll be able then to get each of these projects moving forward. Concerning epacadostat obviously someday there could be a benefit of having our own PD-1.

There are two scenario, one of them is that pembrolizumab and nivolumab and durvalumab plus epacadostat are established standard of care in multiple indications, so that would be one.

Well the question is, can we do it with our own PD-1 also? But there is something that's probably has a far higher probability of success is that we would be also moving through triplets as you were describing, where as we are identifying other combinations that include epacadostat and potentially some of our other product, we will be able to do it with our own PD-1.

So, there is a strategic aspect, there is a tactical clinical development aspect and there is a commercial aspect, and that's why I think it's very important for us to have this product in our own portfolio..

Okay. Thanks Hervé. That's very helpful. And the other question I had on Jakafi and maybe one I've asked before. Can you just speak to the line extension, the investor base – investors generally are obviously focused – more focused on companies' lead assets and the sustainability of that revenue stream.

We appreciate obviously lack of near-term competition or any sort of visible competition.

But just if you could speak to how you can maintain this revenue stream, what line extension opportunities you're working on, and is there any timeline that you can show?.

Hi, Ian, it's Barry. So I'll just try to expand. So I think we've said before – we certainly said before that we'll exceed $2 billion in total revenue for Jakafi, mostly just with MF and PV and adding in GVHD. When we talk about GVHD as a line extension, we are really talking about acute and chronic GVHD together, right.

And then obviously we have essential thrombocythemia. But what we really think the drivers continue to be myelofibrosis and polycythemia vera patients and then add-ons are acute and chronic GVHD and essential thrombocythemia..

Well, Barry, I just....

And then on the....

How do you replace Jakafi, when (48:41)?.

Yeah. So let me and maybe you can – Reid can help on the mechanism, but we have like basically two phases of development where we are trying to improve over Jakafi for both MF and PV and maybe potentially some of the other indication.

One of them is working on the – on combination of mechanism and this is already in the clinic, where we are testing combination with delta, we are testing some alternative schedule of tracks and all of that is already ongoing. On top of that, we are also looking at new mechanisms that could be helping patients with MF and PV.

And maybe Reid can speak about some of these collaborations..

Yeah. Ian, this is Reid. I think it's an important area for us to continue to innovate in. We're very proud with the efforts that we've done in the MPN space. And I think have brought a very important therapy now to patients.

But there still are patients that unfortunately don't receive an optimized benefit from the available therapies and there're still other aspects of benefit that we may be able to achieve with new approaches, new combinations, new therapies. So this is an active subject of research here.

Hervé mentioned, the doublet studies in myelofibrosis, I'll remind you that really the selection of targets like PIM, delta, BRD and even LSD 1 were in part because of their potential activity downstream of the JAK-STAT pathway.

And in fact for every one of those mechanisms I just mentioned, there exists preclinical or translational correlative data that support their potential utility in combination with ruxolitinib. So that will be something that Steven's group will be executing on over the coming months and several years. The delta study is already ongoing.

Beyond that, it's active area of research within Incyte as to how we think differently about myelofibrosis, what do we think about new targets, how do we think about achieving different types of benefit in patients and that's a very early stage research effort.

But it's one that's very important for us to maintain if we're going to continue to have a leadership position in MPNs and continue to drive patient benefits forward. So that's a longer term endeavor, but it's absolutely one that we as a company are very committed to..

Thank you. Our next question comes from Katherine Xu with William Blair & Company. Please state your question..

Yeah. Good morning, and congrats on the good quarter as long as you could indulge me with three questions. Number one is on the FLEX issue (51:27).

I'm just wondering whether you could give us an overview and then your strategy there and potential scenarios that we could expect? Number two is on the ECHO-302, ECHO-305 and ECHO-306 studies, I'm just curious about your rationale and basis for designing those studies in terms of powering and others, in particular just based on the evidence that we have so far and then just what gives you the confidence about those designs? And number three, assuming ECHO-301 is positive and epacadostat and pembrolizumab becomes standard of care, what is the next step that you are thinking about taking to take the front line melanoma cure to the higher level? Thank you..

So, let me start with the FLEX, it would be shorter and there, obviously are public documents that are available. We had press coverage which was surprising coming in the last days or last week, we were – I'm not sure exactly why it came at that point, but we cannot comment further.

So, I think the best is to refer to the existing publicly available documents..

And then Katherine, in terms of your second and third question. Your second one mentions ECHO-302, ECHO-305 and ECHO-306. The renal cell study is looking at a combination of PD-1 plus IDO beating the current care standard of a VEGF inhibitor-based tyrosine kinase inhibitor, it's either Sutent or Votrient.

We needed to execute that study briskly because of the evolving care standards there. We have data from our own program in combination with Merck in ECHO-202 that's already been presented that enabled that decision to be made.

In terms of ECHO-305 and ECHO-306, the lung cancer studies, again the enabling data comes from ECHO-202's lung program in general, it's the PD-L1 high.

And again looking at the combo versus PD-1 alone in the high expresses and then in the all comers looking at the care standards of triplet-based therapy – excuse me, PD-1 plus chemotherapy and then comparing the triplet PD-1 plus IDO plus chemo versus PD-1 plus IDO alone, the somewhat controversial area there is the withdrawal in Europe of that application, but that has not impacted our design and their KEYNOTE-189 study will report out before the study finishes.

So, we remain confident. We do not address powering of our program at all or those design characteristics publicly. We view that as proprietary information between us and Merck which we used to design the program, but we don't put that out publicly. If ECHO-301 is positive in melanoma, that would be the case standard there.

As I mentioned earlier, the natural next place to go to, to address your question to enhance cure rates is the adjuvant setting. To look at the combination in an adjuvant population to increase disease free survival and overall survival, and that would be the intent after that study. Thanks..

Thank you. Our next question comes from Carter Gould with the UBS. Please state your question..

Thanks for the question and congrats on the quarter, guys. I guess one for Hervé and maybe Steven. On the strategy for OX40, GITR and I guess just the next wave of I-O assets.

Is the message really that we should only expect pivotals with your own PD-1, could we still see pivotals with other approved PD-1s? Just want to be – I guess just a clarifying question there.

And then, also when you just think about the MacroGenics PD-1, any reason to think that you might still move that forward as a mono therapy either for regulatory or strategic purposes as you broaden out the indications you might go after? Thank you..

Yes, maybe I would start on the – I think obviously as I've said, I mean the goal is to get this combination done with products from our own portfolio. So you should expect if we go in pivotal study with the PD-1 with OX40 or GIRT or any other product in the I-O portfolio to see that include an MGA012 plus that product in the pivotal studies.

Would it be only with our own PD-1? It will depend highly on the indication we would be pursuing, because as I said in some of these indications pembrolizumab, or nivolumab, or durvalumab, or PD-L1 inhibitors could be the standard of care.

But obviously at the end of the day, we want that pivotal program to include MGA012 plus GIRT or MGA012 plus OX40 or plus arginase, et cetera, et cetera. So, that would be the way to think about it. In term of monotherapy, obviously, you know there are indications where there is the option to receive an indication in monotherapy for PD-1.

It could be either of the so-called niche approach, which we have heard a lot from many different companies, so that could – that is an option, so we are looking at that as a possibility. Or it could be frankly in the less niche indication, where we would be trying to establish it as a single-agent across larger indication, we don't know that yet.

So what we are doing in the short-term are two things is the so-called niche approach in – with a single-agent MGA012, and as I described we would be initiating a number of combination studies in 2018, so that we can be prepared for the next step in combination with our portfolio..

Thank you. Ladies and gentlemen, we have time for one last question. And our final question comes from Michael Schmidt with Leerink. Please state your question..

Hey, guys. A couple of quick ones.

Number one on ECHO-301, what is the number of events needed to trigger un-blinding of the study? And number two, maybe for Reid, can you comment on how important potential differences are among the various IDO inhibitors development in terms of the PK/PD profile, and whether or how that might translate into differentiated clinical profiles? Thank you..

Hey, Michael, this is Steven. Just quickly upfront, we do not disclose the event number that would be – would trigger the ultimate un-blinding, so that's not public information..

Yeah, Michael, this is Reid. On the IDO inhibitor question, the key thing for this target as we know is near complete or complete inhibition. We can do that safely with this mechanism and that's going to be the bar by which we judge compounds.

And I think if any compound can safely with appropriate drug like properties achieve those levels of inhibition and then that should drive the pharmacology, irrespective of any biochemical nuances. At the end of the day it's about inhibiting the enzyme to a maximum degree.

Differentiation between the agents will come from their ability or inability to do that, as well as any other off-target liabilities they may have..

Great. Thank you..

Thank you. I will now turn the conference back over to the Hervé Hoppenot for closing remarks. Thank you..

Okay. Thank you. Thank you for attending this meeting today and your time, a great quarter, progress on the pipeline. Some new entries into our portfolio with the deal with the MacroGenics, and also a new board member.

So a lot of good progress from the Incyte side and we look forward to seeing you – some of you at the upcoming investor and medical conferences including at ASH. But for now, thank you again for your participation in the call today. Bye-bye..

This concludes today's webcast. All parties may disconnect. Have a great day. Thank you..