Incyte’s Jakafi is likely a $1B drug

Predicting future sales for a given drug is always challenging, let alone in a case like Incyte’s (INCY) Jakafi (Marketed in Europe under the name Jakavi by Novartis), which is the first drug in history to receive approval for myelofibrosis (MF). With no precedents to serve as a benchmark, it is still unclear how big Jakafi can be. However, based on Incyte’s recent 2013 guidance and remarks from the head of Novartis’ (NVS) oncology business unit, it has a high likelihood to reach $1B already in 2016.

Incyte’s better than expected Q4 sales and 2013 guidance ($210M-$225M US sales) for Jakafi imply the drug is still far from reaching saturation in the MF market.  In particular, the upbeat guidance implies Incyte is confident in its ability to expand Jakafi use in earlier stages of MF and increase treatment duration by preventing side effects. Given management’s conservatism and the fact the drug is on the market for only 1 year, this guidance looks beatable assuming initial trends in the clinic stay intact.

2 driving forces

There are 2 driving forces behind Jakafi’s renewed momentum. The more important one is repositioning Jakafi as a “life extending” as opposed to “symptomatic” drug. This is based on the survival updates from 2 phase III trials (COMFORT 1 & 2) which showed a clear trend of improved survival in patients who received Jakafi. Impressively, the trend was achieved with limited follow up and despite extensive crossover from the control arms to the treatment arms.

This finding is part of a retrospective analysis that needs to be further validated, and a survival advantage is unlikely to appear on the drug’s label. Still, if physicians become convinced that Jakafi prolongs survival they will be more inclined to offer the drug not only to advanced stage patients but also to less symptomatic patients. The survival update was presented only in December 2012, so its impact is only starting to take effect. As the data matures (assuming the positive trend persists), the survival benefit is a critical component in Jakafi’s growth trajectory.

The second driving force is a dose titration treatment scheme Incyte is promoting in order to avoid treatment discontinuations. This market education effort should increase average duration of treatment by preventing side effects, primarily low platelet counts. In contrast to the survival trend, the dose titration scheme will be added to Jakafi’s label and is expected to have an immediate effect (which can be observed in 2013 guidance).

A lot of credit should go to Incyte’s new Chief Commercial Officer, Jim Daly (ex Amgen). On top of successfully handling Jakafi’s launch, he is doing a superb job conveying the Jakafi story to Wall Street. Daly’s expertise and experience were very visible on Incyte’s last quarterly conference call, where he provided a lot of information (both quantitative and qualitative) on Jakafi’s commercialization.

EU launch on track      

Another source of excitement is coming from Novartis, which has marketing rights for Jakafi (brand name Jakavi) outside of the US. At the recent Leerink conference, Herve Hoppenot, head of Novartis’ oncology business unit, gave an upbeat picture on the drug’s launch in Europe. He stated there is healthy demand and physician excitement around Jakavi, demonstrtaed by almost 3000 patients who are on an early access program.

Novartis is already implementing the dose titration scheme and so far it is not seeing the safety issues Incyte experienced in the US. Hoppenot predicted Novartis will generate $1B in Jakavi sales, half of which expected to come from MF and the rest from another blood disorder (PV, Polycythemia vera). Incyte is eligible for a double digit royalty rate on ex-US sales, which translates to a substantial potential annual payment.

Future competition

There are several programs in clinical development for MF with a similar mechanism of action to that of Jakafi (JAK1/2 inhibition). The 2 most advanced programs are Sanofi’s (SNY) SAR302503 and Gilead’s (GILD) CYT387 (via the acquisition of YM Biosciences). Both drugs appear active in dealing with MF symptoms such as enlarged spleen and constitutional symptoms.

SAR302503, which is more Jak2 selective, is in phase III with results expected in the coming months. The trial is expected to meet its primary endpoint but based on phase II data Jakafi appears to be better tolerated. CYT387 is considered a more serious threat due to a controversial, unexplainable effect on anemia, which is the third hallmark of MF (after enlarged spleen and constitutional symptoms). According to a recent note from Goldman Sachs, Gilead plans to conduct a head to head phase III vs. Jakafi. If CYT387 proves as effective as Jakafi in terms of spleen response but superior in terms of anemia resolution, it could become a strong competitor. Gilead expects to start phase III later this year, so Jakafi is safe at least for the next 2-3 years.

Valuation

The estimated US prevalence of MF in the US is ~18,000, most of whom are symptomatic to some extent. Annual cost of Jakafi is ~$92k. Assuming 9,000 receive treatment with a JAK inhibitor at an annual cost of $70k (patients may have treatment holidays), the addressable market is $630M. PV is much more prevalent (90,000 patients in the US) but it is typically milder and the unmet need is lower. There is still a subset of patients who do not respond or are intolerant to standard therapy (hydroxyurea), but the size of this population is debatable. Assuming a 7 % penetration rate (6,300 patients), results in an additional market opportunity of $440M. Therefore, the US market opportunity for Jak inhibitors can be conservatively estimated at $1.1B, excluding additional indications.

Jakafi’s current run rate (~$180M) was achieved with only 1 year of sales, approval only in MF and it hardly reflects the impact of the new dosing scheme and the survival benefit. If Jakafi receives approval in PV (2014) and the survival trends from COMFORT1/2 are maintained, Jakafi could generate sales $600M in 2016, assuming it takes 55% of the “Jak market”.

Ex-US, Novartis could generate comparable sales (larger markets but lower pricing). A royalty rate of 13.5% translates to ~$80M annually, excluding milestone payments that could reach several hundreds of millions.

Incyte’s 2013 guidance was for operational expenses of ~$420M (270M R&D, $110 fr G&A, and $47M interest expenses). In 2016 expenses should be lower ($370M) due to winding down of clinical activity with Jakafi and conversion of debt. With Jakafi-related revenues of $680M, Incyte could generate $300M in operational profit.

Applying a 20 P/E multiple discounted by 15% yields a valuation of $4B. Importantly, this figure excludes other assets in Incyte’s pipeline such as baricitinib, partnered with Lilly (LLY), which is in phase III trial for rheumatoid arthritis (RA). Another intriguing phase II program that does not appear in Incyte’s pipeline is INCB039110, a selective Jak1 inhibitor. The drug is in phase II in RA, psoriasis and MF. There is a lot of excitement around selective Jak1 inhibitors following the huge deal between Abbott and Galapagos ($150M upfront payment after a small phase IIa).

With a market cap of $2.75B, Incyte still has a lot of room for upside.

56 thoughts on “Incyte’s Jakafi is likely a $1B drug

  1. exel getting some badmouthing from “the street” today, seems like the general market sentiment is lukewarm to cold

  2. Ohad: As a GERN long, let me just say that I hope Jakafi has plenty of competition from imetelstat in due time. ; )

  3. Good buying opp imo, street article had zero info on successful results cabo has had in broad range of ph2’s.

  4. I wouldn’t take that too seriously, they are giving recommendations based on metrics that are irrelevant to biotech companies. Be that as it may, the general sentiment towards EXEL is very negative. People don’t buy cabo’s bone mets effect and criticize the company’s burn rate.

    Ohad

  5. Morphosys has lost about 20% within a few days without news. Very abnormally. I hope they will recover. Apropos European Biotech. Ohad, do you have an opinion about Evotec? Thanks for your great analysis.

  6. Toby,
    From what I read, Morphosys was cut to hold from buy at Commerzbank AG in addition to Europe’s debt concerns and the fact that the stock’s gain since the company reported clinical trial data on MOR103 in September, and also there is no guidance expected for 2013 to serve as a trigger.
    Ohad what do you think?
    Thanks. Chris

  7. Hi Ohad,

    Cris hit its 52 week low today. Can you think of any reason for this decline?
    Thanks Chris

  8. Hey Ohad
    yes, I agree with you about INCY. Are you going to add to your portfolio? How do you think the valuation compares with ONXX?

    Anything to say on CLDX — it has had a very striong run and the CC is next week. What do you think we can expect going forward?

    Thanks, as always, for you insight and perspective

    Dan

  9. I am not aware of any particular reason. The market expects them to doa deal for MOR103 this year. If a deal doesn’t materialize, the stock is in trouble.

    Don’t know Evotec very well, sorry.

    Ohad

  10. Royalties from Roche on Erivedge were lower than expected. This doesn’t change the overall potential of the drug imo. Data in operable BCC is important this year.
    I guess people are also worried about the IAP antagonist they licensed from Genentech. They put a lot of money behind that asset and you can’t blame the market for its skepticism. Data at ASCO 2013.

  11. We already have 2 positions of INCY. Plan to add only if it drops significantly.
    Re CLDX, let’s wait for the CC. The most interesting thing would be their registration plans for CDX-011 (accelerated approval in TNBC GPNMB+ patients based on p2,
    regular approval in all GPNMB+ breast cancer patients.

    Ohad

  12. Did not bet the farm. Held back cattle and horses. ; ) I don’t think safety issues seem to be big concern in grand scheme of heme onc settings so far. Need to see how efficacy looks beyond ET though.

  13. Hi Ohad,

    Any thoughts on MEI pharma? Seems like it has caught some attention recently. Their very limited MDS data in combo with Vidaza was very good, but it seems to be just another pan-HDACi, perhaps with better pharmacokinetics. Seems like AML/MDS respond to these epigenetic treatments, maybe MEI has just found the right indication for this HDACi? Low M.C. but noticed some bigger name funds purchased shares last quarter. Thanks.

  14. Note also that this may have relevance for CRIS as well as they have a dual HDAC/pan-PI3K in Phase 1 for heme onc.

  15. would you consider adding more Aveo at this point prior to the Fda meeting in May?

  16. Ohad
    I disagre with you. I think GERN’s valuation is low. After all YMI was purchased for $500M+ as a phase 2 company. What’s more, YMI’s target is very similar to Jakafi. GERN’s drug is unique and this alone makes it a more compelling investment. Sure it’s risky. But the results in ET are comelling enough. Moreover, Taffiieri, the “specialist” in MF (linked with YMI) is conducting a very interesting phase 2 of Imetelstat in a number of blood disorders…
    Dan

  17. I was just about to ask Ohad the exact same question.

    The FDA ODAC meeting on May 2 morning is earlier than AVEO expected according to AVEO CFO’s recent comments on Feb 27.

    http://investor.aveooncology.com/phoenix.zhtml?p=irol-eventDetails&c=219651&eventID=4915330

    Does that mean we will get a decision earlier than July 28?

    Friday’s share price drop is disconcerting. After market share price shot back up on 56,500 shares though.

    http://www.marketwatch.com/investing/stock/AVEO

    Thanks Ohad.

  18. I remember taking a look a while ago and couldn’t find any differentiation from other pan-HDAC inhibitors.
    Overall experience with this class of molecules has been negative especially as single agents. Some approaches of combining them generatyed early interesting data (Syndax and Astex are 2 examples)

    Ohad

  19. I am definitely considering that as I expect a positive ODAC vote but it’s important to realize it will be a binary event. A negative ODAC decision will send the stock down 70% imo.

    I don’t think you can infer anything about approval date based on the ODAC’s date.

    Ohad

  20. Have other HDACs shown anything close to the line of 7/9 (may have been 8/9) CRs like MEIP HDAC has in combo with Vidaza in advanced MDS patients? Sounds quite impressive on the surface.

  21. Hi Ohad,

    what value do you assign to GKA AMG-51 for type 2 diabetes? Do you consider it promising?

    Thanks Chris

  22. I saw someone tweet yesterday that AMGN may present Phase 2 results on AMG-151 at a scientific conference in April or May this year. I’m not sure if that’s right though; think it may have to be later in the year. Anyways, I don’t think the market assigns much value to ARRY for AMG-151. Think it’s a bonus if there are positive Phase 2 results.

  23. Ohad: what are your current thoughts on CRIS? I see they are a small holding in the portfolio. Thought Cowen presentation was interesting and they did a good job of explaining how they were able to in-license IAP inhibitor from Genentech (Roche focused on single agent targeted drugs w/companion diagnostic; IAP has more utility in combo treatment). Also, the PI3K+HDAC all-in-one sounds kind of interesting to me and CRIS explained potential utility in MM and other heme onc settings.

  24. Hello Ohad, I saw that MD Anderson just issued new work that echoes some prior work in suggesting that saline based cancer vaccines may be far more effective than IFA based vaccines. Do you see a way to translate that hypothesis into investing action? I’m not finding enough information online to understand which vaccines in progress are built in which way, or how easily they can be switched around to test the hypothesis. Thank you for any thoughts – link below is for the MDA press release.

    http://www.mdanderson.org/newsroom/news-releases/2013/cancer-vaccines-channel-immune-attack-to-injection-site.html

  25. Hi Ohad,

    Celldex has been on a wicked run. At what point would you begin to trim some from your portfolio? Or are you seeing through to Rindo, -011 data. Any comment on their complement inhibitor? Seems this compound is 25yrs old. Have they just now found the right indication, DDD? A

  26. I think they have 1 clear asset to which the market assigns value (Eviredge). The rest of their pipeline is too early and I have to admt it’s hard for me to get excited. I count on Roche to grow Eviredge, which is why I hold CRIS.

    Ohad

  27. I actually think this is a very interesting wild card. Beyond DDD there are a lot of other applications as demonstrated by ALXN’s Soliris and Novartis C5 antibody for ophthalmology.

    Ohad

  28. Hi Ohad,
    Genmab is 12% up today. Strong earnings report.
    Galapagos and Roche conclude their strategic alliance. Any thoughts?
    Thanks as always Chris

  29. Ohad,

    Big run-up in CLDX again today. Would you hold for the data this year on CDX-1127, not to mention CDX-1135?

  30. I think if tivo gets rejected by the FDA and stock plunges, the biomarker potential would have me interested in the stock at that point. I don’t want to play the FDA decision, however.

  31. I read where someone said a new biologic would get 12 years exclusivity so it may not matter if patent life has already run out. All that said, I took my CLDX chips off the table as I figure easy money has been made. I could be wrong, of course.

  32. Like Ohad said, AVEO’s share price potential is binary due to the extreme importance of the ODAC meeting and FDA decision on TIVO, however risk/reward profile looks very favorable at the moment. Today’s big move shows more investors are starting to feel the same.

  33. After market today, the following was filed:
    Form 4 AVEO PHARMACEUTICALS For: Mar 07 Filed by: TERMEER HENRI A
    TERMEER HENRI A (AVEO director) bought 55,499 shares at $6.7341 (~$374k) on Mar 7, 2013. Great sign! He now owns 100,000 shares.
    Then in after market, AVEO went up another
    Change +0.22 +2.98% to $4.61 on volume of 11,596.

  34. Genmab had a great quarterly call, everything is falling into place including a potential breakthrough indication.

    GLPG- very interesting given the economics of the abbott deal. They have to wait until next year, no?

    Ohad

  35. Hi Ohad,
    Only now am I appreciating
    the potential of Genmab’s daratumumab. Would you be cautious about entering at these current levels? Thanks.

  36. Thanks Dan, very interesting but this will have to rigorous prospective validation. Not sure it will be practice changing until then.

    Ohad

  37. I am not sure about CDX-1127 just based on the fact they are not putting a lot of emphasis on it (usually companies say something like “we’re seeing early hints of activity, looking forward to present data at an upcomig medical meeting etc.). CDX-1135 I like more and more

    Ohad

  38. If daratumumab is going to be as big as I think it is, Genmab can be a $2B company by the end of next year excluding all other assets. In other words, there is still room to grow and I am considering adding.

    Ohad

  39. What’s your thoughts on SNTA? Two or three days ago they had a presentation that mentioned Ganetespid NSCLC 2L, adenocarcinoma had the potential for $2B+/year and at today’s CC they state their current cash reserves will carry them only into 2Q2014. Be nice if they had a partner for financing.

  40. Basically, the story stays intact until new data arepublished (probably at ASCO). Regarding a partner, a global partnership seems unlikely, perhaps a geographical deal for Japan.

    Ohad

  41. Ohad
    You wrote: “Genmab can be a $2B company by the end of next year”
    I am a bit confused about that. Under the OTC – GNMSF symbol the company evaluation is already at $2.1B.
    Any good site to learn about the company – financials, etc?
    Where one could trade it? GNMSF on OTC is not liquid.
    Thanks.

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