Greetings, and welcome to the Insight First Quarter 2018 Conference Call. At this time, all participants are in a listen only mode. A question and answer As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to your host, Mike Booth, Vice President of Investor Relations for Incyte. Please go ahead, sir.
Thank you, Kevin. Good morning, and welcome to Insight's first quarter 2018 earnings conference call and webcast. The slides used today are available for download on the Investors section of Insight dot com. And I'm joined on the call today by Herve, Barry, Steve and Dave and Reed. Before we begin, we'd like to remind you that some of the statements made during the call today are forward looking statements.
Including statements regarding our expectations for 2018 guidance, the commercialization of our products and the development plans for the compounds in our pipeline. As well as the development plans of our collaboration partners. These forward looking statements are subject to a number of risks and uncertainties, that may cause our actual results to differ materially, including those described in our 10 K for the year ended December 31, 2017, and from time to time in our other SEC documents. I'd now like to pass the call to Herve for his introductory remarks.
Thank you, Mike, and good morning, everyone. So there is much to be excited about for the future at Insight. With our fast growing revenue line, a late stage pipeline of compounds that could lead to new marketed products in the next several years, and an earlier stage portfolio offering multiple opportunities for the longer term. That said, it's definitely been a past few weeks from a neutral standpoint, and I would like to briefly share my perspective as we begin today's call. Efficacy was a pioneering development program and what is true in the biology did not translate into a benefit in patients with advanced melanoma.
We have been working efficiently with investigators and our partners to downsize the ecosystem while still allowing us to ask the right scientific question, but in a much smaller program. Stephen will detail these challenges later in the presentation and these charges should allow us to recalibrate our R and D spending going forward. Next let me quickly address baricitinib. Let's tweak the FDA convene and let's come to discuss the resubmission of the baricitinib NDA for rheumatoid arthritis. Which voted in favor of the benefit risk profile of the 2 milligram daily dose.
The FDA action date for Vasetinib is in June 2018. Looking forward, the next steps for insights are very clear. We will continue to grow our top line And from the new R and D and SG and A guidance, we published this morning, I believe that we are now on a clear trajectory towards sustained profitability We also have an obligation to deliver on the promise of our exciting portfolio of development projects and slide 4 illustrates the depth and breadth of our product pipeline. We have 5 molecules in later stage clinical trial. And it is first pivotal trial of Jakafi in GVHD before the middle of the year.
And initial data from our FGFR inhibitor program in cholangiocarcinoma are expected the second half of twenty eighteen. And into the JAK1 program in GvHD, and we anticipate opening a number of single agent and combination covers with our PD-one antagonist during this year. We look forward to highlighting this program and other candidates within the inside portfolio at our investor and analytics event on June 21, where we also expect to dig a little deeper into Jakafi commercialization trend and future market dynamics. Revenue from Jakafi in the U. S.
Continues to be strong and including in Europe is now becoming a contributor to our top line growth. Royalties from Jakavi grew by over 40% this quarter and we expect royalties from Olumiant will become significant in time. As shown on the right hand side of slide 5, we also have multiple opportunities to drive additional revenue growth in the future. New indication may be achieved for Jakafi and we also have a number of new molecular entities that could be submitted for global approval over the coming years. With that, I'll turn the call over to Barry for an update on Jakafi.
Thank you, Irvin, and good morning, everyone. Net product revenue for Jakafi in the first quarter of 2018 grew by 25% over the same period last year. Sales continue to be driven by robust prescription demand and we saw a year on year increase of approximately 17% in total patients being treated with Jakafi. We exited Q1 twenty eighteen with normal levels of inventory and take the opportunity today to reiterate our Jakafi net product revenue guidance the full year of 2018, which is in a range of $1,350,000,000 to 1 $400,000,000. Slide 8 illustrates the estimated penetration of Jakafi into its 2 approved indications.
We believe that there are approximately 16,000 MF patients and up to 25,000 PD patients that are eligible for Jakafi therapy and we continue to work to bring Jakafi to more of these patients. We see therefore significant potential growth in both indications And this potential is augmented because as the proportion of PV in the patient mix rises, so does the average duration of therapy. As you recall, in July last year, Jakafi was included as a recommended treatment for PD in the NCCN guidelines. We believe that there is now a greater awareness of those guidelines among the prescribing community and also that as more physicians become familiar with the PD guidelines, that usage of Jakafi may increase. I'll now pass the call over to Steven for an update on our portfolio.
Thanks, Barry, and good morning, everyone. As you can see on slide 10, we are making some important changes to the ECHO program following recently announced results of Echo-three zero one, which clearly demonstrated that adding epacadisat to Pembro did not add efficacy over Pembro monitor in patients with advanced or metastatic melanoma. We have also moved very swiftly and with significant cooperation from the investigators from Merck and the conference organizing committee to bring the AECO-three zero one data to ASCO next month. We think it's very important to share these data as soon as possible. We want to assess the IO plus PD-one combination in another tumor type.
As well as a setting it in combination with chemotherapy. We can achieve both of these objectives by changing the 2 ongoing lung studies with Pembro into randomized Phase II trials. Specifically, we'll be looking at the auto plus PD-one combination in tumor proportional score high, non small cell lung cancer versus pembro alone, and thus performing a randomized phase 2 test in a second histology after melanoma. And
we would look
at the auto PD-one plus chemotherapy combination versus Pembroke plus chemotherapy in an all com and non small cell lung cancer population. Thereby also asking the chemotherapy combination question in a lung cancer population. Enrollment in all of the other pivotal studies in the echo program has been stocked. And each of these studies will be The proposed pivotal study with DERVA will not be initiated. We will continue to investigate the potential utility of either 1 inhibition a variety of clinical settings, the disease will be conducted in small, proof of concept trials and where we believe the biology and translational data are compelling.
The lower half of the slide describes these updates in more detail. On Slide 11, we summarized our commitment to finding a safe and effective treatment for graft versus host disease. The incidence of graft versus host disease has been growing due to the increase in the number of allogeneic transplants. Unfortunately, approximately 50% of these transplant patients develop graft versus host disease and mortality rates in GvHD patients can be very high. In the first year, mortality rates can be between 25% 75% depending on the grade of the graft versus host disease.
So the unmet need here is very clear. The result of the REACH1 trial evaluating ruxolitinib in patients with steroid refractory acute graft versus host disease is expected this quarter. And I can to submit a supplemental NDA in the second half of twenty eighteen. REACH 2 and REACH3, the pivotal trial been running collaboration with Novartis are ongoing and we plan to enroll more than 300 patients in each itacitinib in patients with treatment naive graft versus host disease. Gravitas-three zero one is expected to enroll more than 400 patients and we anticipate that by reminding you that we are expecting to announce initial data from the trial evaluating 54828 in patients with advanced or unresectable cholangiocarcinoma later this year.
The trial is expected to enroll a total of 100 patients with FGFR2 translocations. 20 additional patients with other FGF or FGFR alterations and 20 patients without any FGF or FGFR alterations for a total of 140 patients. The primary endpoint will be the overall response rate in patients with FGFR2 translocations. If the trial is successful, it could lead to an NDA submission as we seek to bring a new therapy to patients with cholangiocarcinoma. Which is an orphan indication and represents a significant unmet need.
In the second line setting, host first line chemotherapy Overall response rates to 2nd line therapy in cholangiocarcinoma only approximately 10% with a short 2 month progression free survival. We are also evaluating 54828 in patients with metastatic or surgically unresectable bladder cancer, as described in the lower half of Slide 12, This trial will focus on the efficacy of FGFR inhibition in bladder cancer patients with FGFR3 mutations or fusions. With that, I'll pass the call today for the financial update.
Thanks, Stephen. And good morning, everyone. The financial update this morning will include GAAP and non GAAP numbers. For a full reconciliation of GAAP to non GAAP, please refer to our press release In the first quarter, we recorded $382,000,000 of total revenue on both the GAAP and non GAAP basis. This is comprised of $314,000,000 in Jakafi net product revenue, $21,000,000 in Inclusive net product revenue, $41,000,000 in Jakavi royalties from Novartis and $6,000,000 in Olumiant royalties from Lilly.
First quarter Jakafi net sales of $314,000,000 represents 25% growth over the same period last year. And 1st quarter Jakavi royalties of $41,000,000 represents 43% growth over the same period last year. Remember that despite significant growth in underlying Novartis sales of Jakafi, the royalties received in the first quarter of 2018 are slightly lower than the fourth quarter of 2017 because and we began each year in the lowest tier. Our gross debt adjustment for the quarter was approximately 16%. This is driven primarily by Jakafi and as with similar oral oncology drugs, our gross and adjustment is higher in the first quarter of the year, than the rest of the year, primarily because of full year 2018 will be approximately 14%.
Our cost of product revenue for the quarter was $13,000,000 on a non GAAP basis. This includes cost of goods sold for Jakafi, Acoustic, and the payment of royalties to Novartis on U. S. Jakafi net sales. Our R and D expense for the quarter was $266,000,000 on a non GAAP basis, primarily driven by clinical development programs.
Our SG and A expense for the quarter was $109,000,000 on a non GAAP basis. This includes an increase in our donations to independent charitable foundations. Which are typically higher in the first quarter and lower as the year progresses. Moving on to non operating items We recorded GAAP and non GAAP net interest income of $4,000,000 in the first quarter. In the first quarter, we recorded a net loss of $3,000,000 on a non GAAP basis.
Slide 16 provides a summary reconciliation from GAAP to non GAAP metrics And as I mentioned, a more detailed reconciliation is provided in this morning's press release. The next two slides provide a summary of our updated guidance. We have made no changes to revenue or cost of product revenue guidance. As we adjust our Epic Catastat development programs, Our GAAP R and D guidance will change to a new range of $1,150,000,000 to 1,250,000,000 which is a reduction of $50,000,000 from our previous guidance. Looking further out and compared to our prior plan, We also expect the R and D expenses related to Epicatostat will be significantly lower in 2019 2020.
In addition, in April we paid BMS of $15,000,000 fee to exercise our option to purchase a non exclusive license related to PD-one intellectual property. This amount will be excluded from our non GAAP earnings in the 2nd quarter. Given the recent news of our Epic Catastat development program, we're updating our GAAP SG and A
expense guidance to
a range of $390,000,000 to $410,000,000. This now excludes $125,000,000 about the Catastat pre launch expenses that were included in our previous SG and A in cash and marketable securities and we expect to end the year with a similar level of cash and marketable securities. To summarize, we delivered strong product revenue growth for the first quarter. We believe we are well positioned from a revenue and cash perspective And despite DECO-three zero one disappointment, we continued to make advancements in our clinical development programs. Which we strongly believe have the potential to deliver long term shareholder value.
Please give
Our first question today is coming from Alethia Young from Credit Suisse. Your line is now live.
Guys, thanks for taking my question. Just kind of 2 big picture. 1, with the PD-one program, you have from MacroGenics, so how do you think about kind of changing, or thinking about redefining this program or will you use monotherapy or would you kind of continue with the combinations, which are kind of Phase 2 assets. And then just also, I mean, talking a little bit about, the trends that we've seen coming out AACR, I know that you kind of kind of use this high tumor burden folks in the non small cell group. So I just wanted to see kind of how you were thinking about that strategically as well.
Thanks.
Alethia, hi, it's Steven. Thanks for your question. So for our MacroGenics PD-one, in many ways, a bit was independent of Idaho. We needed, that compound internally for upwards of 7 combinations to be done. If you look at the compound at a high level, in terms of monotherapy, we'll be pursuing, registration strategies likely in the tumor initially and then potentially exploring elsewhere thereafter in bigger tumor types.
So, just to reiterate, it'll have a monotherapy set strategy attached to it, as well as numerous internal combinations that need to be done for proof of concept work. In terms of AACR and perspectives on what is the potential best way to select patients for immunotherapy in general and checkpoints. We follow in all of what you mentioned, including, you know, PD L1 tumor proportional scores, tumor mutational burden, etcetera. We haven't yet outlined, you know, which way we would potentially enrich but all of the above are interested in. We'll also obviously be examining our own data from ATCO-three zero one, to see in that program what biomarkers may or may not help
us? Thanks.
Thank you. Our next question is coming from Cory Kasimov from JPMorgan Chase And Company. Your line is now live.
Hey, good morning guys and thank you for taking my questions. Wanted to follow-up on your prepared comments for FGFR and cholangiocarcinoma. The comments were helpful in framing expectations for this pivotal 2 trial a little bit, but there's obviously a lack of viable options for patients if response rates to current standards are only 10%. But I'm curious how much you think you need to clear this by to have a clinically meaningful single arm result that would potentially satisfy regulators. And then as a follow-up, can you also describe the market opportunity here a little bit?
What's the potential sizing?
Sorry, it's Steven. I'll do the first part of your question and then somebody else will opine on the second. The you're right. The single agent, well, excuse me, combination chemotherapy response rate are around 10% with very short progression free survival of approximately 2 months in the second. So for us, something north of that that is durable.
So response rates, you know, 20% to 30% range that are durable would be for us, you know, a reasonable consideration for an accelerated approval in that setting that's combined with a reasonable progression free survival. You do have to couple that additionally with the likelihood that a single agent targeted therapy is likely to be a lot more tolerable than combination chemotherapy So for all of those reasons, should the trial deliver the results we expect, we think we'll have a viable option for a submission there. In terms of the market up I'll pass it to Barry.
Sure. Remember, this is a subset of patients with the claudiocarcinoma that have, FGFR2 trans locations that we're looking at. So in the United States, we believe the opportunity is about a 1000 patients with this disease in the translocation and worldwide about 3000 patients. And then one quick follow-up
on this program, the bladder cancer, the FIGHT trial that you have in that you highlighted in your slide. Is the intention there also for that to be a pivotal trial?
Sorry, it's Steven again. It is a the single arm study in
FGFR3 patients with bladder cancer.
So again, should it deliver, you know, a response rate that's durable, it would certainly be considered for an accelerated approval opportunity in the U. S. In terms of ex U. S, that would be a matter for, you know, regulators to consider, but we may need a randomized data additionally for that.
Okay. Thanks guys.
Thank you. Our next question today is coming from Ying Huang from Bank of America Merrill Lynch. Your line is now live.
Hi, good morning. Thanks for taking my questions. The first question is maybe can you talk about the percentage of R and D in a non GAAP R and D portion that's allocated to the Idaho program and also get a sense maybe, the run rate for 2019 R and D. And then, secondly, if the 2 milligram of baricitinib is approved by SKF and not the 4 milligram, considering the market size and your, your royalty rates, would you, reconsider the op team for that and the other indications? Thank you.
So Ying, it's Dave. I'll answer the first part of the question. In terms of, the R and D that is a percent of what is I don't 2018. We don't break that out separately, but obviously it's going to come down because we mentioned that will come down in our prepared remarks by about the overall R and D expense will come down by about $50,000,000. And obviously in 2019 2020, it will become very insignificant, there will still be some, but it will be far smaller than we originally thought it would be.
Yes. Regarding Basitinib, I mean, the frankly the opt in option that we have is already open. And, you know, we look at it by indication. So there is no really direct correlation between that decision new indication and what could happen in RA, but there is a connection in the sense that it has an impact on the royalty and the amount of royalties that we receiving. So, it's far too early for us today to make a speculation about which way it would go.
I think we have a month and a half now of up to June to see how the discussion, are going with the FDA and then we will have all the opportunities to make decision based on that.
Thank you. Our next question today is coming from Geoff Meacham from Barclays. Please proceed with your question.
Good morning guys. Thanks so much for taking our questions. This is Jason on for Geoff. I'm just curious with regards to the, epacadostat, lung cancer trials. I know it's still early days, but were there any clues from Echo-three zero one that could give you some insights or provided some suggestions as to what happened there and then why specifically, lung cancer study has a potential?
And then sort of touched upon this, but in terms of patient stratification, again, any clues along that way?
Jason, hi, it's Steven. So, you know, for Eco-three zero one itself, as I said in my prepared remarks, we've been able to secure an oral presentation at ASCO on Sunday morning. So, the data will be presented there. It is early from the biomarker point of view, as we said repeatedly beforehand on calls, the biomarker data only comes in through the second half of this year So at this junction, I can't tell you whether or not that presentation will have, you know, biomarker data within it. In terms of sort of read through to lung and why lung, so firstly, you know, we step back.
We consider auto a pre, proof of concept asset now. And with Merck, we'll be doing randomized phase 2 tests in the lung cancer setting, in the 2 setting. So, in the tumor proportional score high by the Merck definition of 50% or above. It's a very clean study of Pembro monotherapy versus Pembro plus either and isolate the potential effect of either very cleanly in a randomized phase 2 setting. There's no other enrichment at the current time or any learning that we read through to that.
In terms of the second study, again, a different MOA being explored with chemotherapy, in an all comer lung setting, and again, a very clean study of pembrokemohado, this, the, the combination with auto alone that then allows us to isolate the auto versus pembroke chemo. So pembroke chemo either versus pembrokemo that then allows us to potentially isolate the auto effect very cleanly there. And again, at this junction, no important biomarker stratification at this point in time.
Great. Thanks for the color. I guess is there any other potential, oncology indication that you think you might consider following with Epicaxibat?
In terms of the, the checkpoint blockade doublet, we, as our outlander suppose are pretty clear. We want to test one other histology to sort of rule out a false negative, if you will, randomized phase 2s and then the the chemotherapy, MOA. In terms of beyond that, in terms of other biology, I'll ask Reid to answer your question.
Yeah, this is Reed. You know, so we remain and I think the field remains interested in idea 1 and maybe the most appropriate place to evaluate an inhibitor. And so in situations where we think the scientific data, you know, preclinical or translational are strong, and we have a clear way to isolate treatment effects to evaluate the molecule in a clinical setting. We look to pursue those. They'll likely be in, smaller Phase III studies, perhaps in randomized Phase II studies like Stephen just described that we're going to conduct with Merck in lung cancer.
But I think our thinking around idea 1 is evolving, given the 301 data But we do absolutely look to study the mechanism in other places such as with vaccines, perhaps with other, immune stimulatory mechanisms And I think the details on the early stage program for Epicanostat will evolve over the coming months.
Great. Thanks so much for the color.
Thank you. Our next
question today is coming from Jay Olson from Oppenheimer And Company. Your line is now live.
Hey guys, thanks for taking the questions. Just want to make sure that we understand the GVHD opportunity. Can you just walk us through where Jakafi and itacitinib will fit into the current treatment paradigm in light of some recent approvals such as IMBRUVICA? And then maybe take us through, how we should think about the size of the commercial opportunity there?
So Jay, it's Steven, I'll start off and then, and then Barry will talk about the commercial opportunity. So if you step back and look at graft versus host disease in its entire spectrum, you're dealing with multiple entities So, there's a steroid refractory setting, which is where we started with the REACH 1 study and that's a single arm study that will be delivering data first half of this year looking at ruxolitinib monotherapy in a single arm study with a 28 day endpoint steroid refractory acute graft versus host disease. To back up that study and with Novartis, also to get approval ex U S is REACH 2, which is a randomized study of ruxolitinib in the same settings, steroid refractory acute, versus best available therapy. And then there's a completely different clinical entity, chronic graft versus host disease which occurs more than 100 days post transplantation as a different clinical phenotype in terms of it being more fibrotic disease and more skin manifestations. And you're right, Abrutinib has an approval there, in that chronic graft versus host disease setting.
Our randomized Phase 3 study, REACH3, is ruxolitinib versus best available therapy, which could include ibrutinib in that setting and the primary endpoint is response rate at month 6. So, that's the spectrum of the steroid refractory setting. And then there's a completely different entity, which is upfront steroid naive graft versus host disease. So, before high dose dexamethasone is used, And if you remember, our proof of concept data with itacitinib, our JAK1 inhibitor was strongest in the setting. And that's where we're conducting BRAVITAS-three zero one.
Which is in steroid naive graft versus host disease in the acute setting, 4 36 patients is randomized study versus, placebo in that setting with steroids to 28 day response rate. If that study is ultimately successful, then ecosystem would be used upfront in the steroid naive setting. And that's a compound that's wholly owned by inside and it's globally ours. And then rux would find its way more in the steroid refractory setting as outlined above. I'll ask Barry to pine on the epidemiology.
Yes, that's Camve here. So, I'll before I speak about the U. S, just to give you the perspective of the potential for So, the first, program is ruxolitinib, where, obviously, it is, inside commercializing
in the U.
S. And our partner Nava is outside in steroids, refractory GvHD. And that is, a number of patients that has been estimated, as shown on slide 11, it's around 3500 new cases of acute GvHD, in the U. S. And there is around 3500 new cases of a chronic GvHD also into US.
So that's the first thing where we do the work with Novartis. We will come light in the U. S. And that's a steroid refractory in your setting. In the steroid naive GvHD where itacitinib is developed.
We estimate, north of 10,000 new cases of acute GvHD between Europe, and Japan. And it's important because it's a project where in sight with de commercializing Intacitinib across US, Europe and Japan. So, I don't know if you want to speak a little bit about the specific U. S. Short term opportunity for us.
Well, so I think Erve pointed out the epidemiology for both acute and chronic GvHD in the U. S. I think you asked a question about IMBRUVICA and obviously it's approved in the, chronic GVHD setting, we think that there's an opportunity for both drugs there. We actually don't see the uptake in Rubraca to be that great so far. In chronic GvHD and we think our profile will serve patients well there.
Great.
Thanks for
taking the question.
Thank you. Our next question today is coming from Catherine Sood from William Blair. Your line is now live.
Hi, good morning. I just have two questions. First, Barry, can you, at this moment, comment on the duration of moving on this NPV in the marketplace. Just some update there will be very helpful. And then also to Dave, and Orvea, I guess, how do you look at the strategy or update the strategy going forward profitability and, reduction in R&D going forward for the company?
Yeah, thanks, Catherine, for the question. So, we've said
this a number of times, I think, about persistency and, in the commercial setting, how sometimes it's difficult to actually follow patients as they switch insurance and so forth. But, so, the best evidence is to turn to our trials. If you look at the response trial, for example, more than 80% of patients are still on therapy at 2 years. And if you look at the COMFRE trials, you have more than 50% of patients are on therapy at 3 years. So that's sort of our guidepost.
There's actually information from our response trial from ASH and will be an update at EASH, European Society of Hematology, where we've shown the response data that patients, 66% of patients are still either on therapy or have completed at least 5 years of therapy. So, the duration of therapy in PV is clearly longer than MF, but MF patients stay on therapy for a long time as well.
Dave? Yes, on the R and D and the profit question, I mean, we have said, I mean, it is that a series of decisions and choices that are made on a project by project basis. So, the paradox of what happened with 301 is that by downsizing very drastically our packet of that program as we just discussed. In fact, we are improving the profitability for this year, but obviously it was not the goal. I mean, the goal was certainly develop it in multiple indications very quickly.
And it's interesting to look back at this as a start of an example. We have project here that had a clear, safety profile that was very well established. It's a program where we have good biology We have early clinical data and where from the cost and the strategic standpoint, it makes a lot of sense to test it in a larger scale. As, as we did, if you look at the cost of 301, so the study that, you know, led the first Phase III study that led to the results we discussed over the past month. So, total cost of that study for inside was around 50,000,000 over 2 years.
So it's the case because we have a partner that was sharing the cost because we had the supply also from the partnership, etcetera. So, when you look at it from that standpoint, you say it makes all the sense in the world to do that investment that would put us ahead of of the curve from the competitive standpoint and give us a clear advantage. So, we will continue to look at a research program that way where we look at them as does it make sense to invest in the program based on the science and the safety and the biology and the efficacy that we are seeing and then the cost and the competitive overall, when you look at the portfolio as a whole, the top line continues to grow very dynamically. It's 25% in the U. S, a little bit more outside from the royalties we are receiving.
So, you can imagine that over time as we have said, you know, there is the lines are going to cross or have crossed over the past quarter depending on the on some of the events. And what we are seeing today is that with the downsizing of a packetless path. It's clearly a situation that will go in that direction. It doesn't mean that if there is the case that requires resources to be fully realized, we will not do it. It's just looking at the trend and trying to to project from the existing trend that we obtained over the past quarter.
Thank you. Thank you. Our next question today is coming from Carter Gould from UBS. Please proceed with your question.
Morning, team. Thanks for the color on the R and D spend. I guess sort of I just wanted to follow-up on that prior question. I appreciate your comments that you've taken I do R and D spend out of the numbers and still kind of look at these things on a program by program basis, but I mean, the R and D line is still even pretty robust even with kind of Idaho coming out. So maybe if you could just expand a little bit more in terms of maybe just the focus on profitability going going forward here and to the extent that you feel like
you may still need to do
work on that end or you feel pretty comfortable after this guidance
change? Thank you.
Yes. Concerning the APAC EBITDA program, obviously the 1st 2 quarter of this year will still carry the cost of the larger studies that we, we, we had ongoing. So, don't expect Q2 to be suddenly dropping very quickly. I think you will see most of the effect in Q3, Q4 are currently in 'nineteen and 'twenty. Just to be very clear by shutting down or stopping some of the studies in the middle of the quarter, you end up carrying all the cost of the closure.
So, that's what the perspective looks like. I believe having a robust R and D spending for a company like us is, is the right thing. If the science is, is good. And I think we'll be following that science as we go at the same time. I also believe that because we have this growth of our top line that we would be emerging in sustainable profitability over the next quarters, just as we have always planned for.
So there is There was always a plan in the way we were looking at the number and specifically on the ratio of fixed cost and variable cost. To emerge into sustainable profitability at some point. The fact that the hydro program has been, more or less put back into proof of concept stage or a very much smaller investment is just making it happen a little bit earlier.
Thank you.
Thank you. Our next question is coming from Peter Lawson from SunTrust Robinson Humphrey.
Perfect. Just maybe thoughts around kind of M and A, the idea of buy in versus building? And how aggressive you could get on use of capital structure there?
Yeah, I think the, I mean, you know, we have been always open to acquiring assets. So you can see that over the past 3 years. It has been fairly selective. It has been targeted to some, scientific questions that we were interested in and you can go back to our G And A's or it has been, based on portfolio needs like the macrogenics PD-one And then there are some more scientific early stage research programs like Miraz and Tyros. So you can see the appetite for partnership has always been there.
I think the portfolio we have today is very sort of near term opportunities. We spoke about them, but there are like 4 molecules that are at, you know, the stage of, of starting on being in the middle of pivotal studies. So, we don't like opportunities to launch new products over the next few years. And at the same time, if we see opportunities that will strengthen that, we will look at them, but we would not look at them at any price. I think it would have to be something that fits with the portfolio and something that is in a price range that is, reasonable.
We have 1.11.2 $1,200,000,000 in cash, so that gives us some flexibility to do that if we see the right opportunity. And that's really the way we look at it.
And the comments around sustained profitability, is that going to
be a key part of
the corporate and financial strategy going forward?
It's always the goal. There is no objective of not being profitable of So, it has always been the goal. It is always the goal. What we see today, because of the technical, reduction of our R and D spend with the effective step downsizing is that it is, in fact, happening, in the short term, it should take the guidance we just Gabe, maybe, maybe Dave if you can describe it,
Tim?
Farhan with Herve is mentioning, if you take the guidance we just gave, we reduced the SG and A guidance and that reduced the R and D guidance. And of course, we don't give guidance on milestones, but if you assume what the consensus is on milestones of Jakavi royalties of $200,000,000 $40,000,000 in Olumiant because that's consensus. We're going to end up with non GAAP profits of between 2 100 to $250,000,000 this year. So, you know, we're, as Ervin has mentioned, we're well on our way to that sustained profitability number. And hope over time that'll get better on a yearly basis.
Perfect. Thanks
so much. Thanks for
taking the questions.
Thank you. Our next question today is coming from Salveen Richter from Goldman Sachs. Please proceed with your question.
Into the early pipeline and your checkpoint strategy here. You've completed these dose escalation studies for FOX-forty and Gitter. Could you just comment on what you're looking to combine these with going forward? And it looks like the TAM3 and LAG3 studies are progressing to clinic. So how are you prioritizing the relative targets, particularly given competitive feedback?
Kelvin, it's Steven. Hi. I'll start. So for the agonist for OX40 and Gitter, they've been in the clinic the longest Gitter, slightly before OX40. And as you pointed out, we've got 2 recommended Phase 2 doses for the monotherapy They likely, both combination drugs, you know, should they continue to go forward, they, they neither us nor our competitors have demonstrated to date any, you know, large amount of monotherapy activity nor was it expected.
And currently with checkpoint blockade, we hope over the ensuing, next half of this year, early next year to get to the ability to discern whether or not there's proof of concept with these, agonists in combination with checkpoints. In terms of Tim-three and LAGDry, they're on track to go through their INDs, this year and get into the clinic, their antagonists. The field is a whole is probably a little more, bullish about the antagonist. And again, they're not likely to have a large amount monotherapy activity based on what we've seen from competitors. So, there'll be, combination, products One thing we can do and we're not first is learn hopefully a great deal from our competitors and see where they go and where they potentially get, proof of concept and then jump on that quickly.
But as I said, it's very early with those programs and they're only about to go into the clinic. And then I'll just remind you that we are, taking another compound as we speak into the clinic that also has, biome mechanism to it, and that's our Axle Muir inhibitor and we'll be taking that very carefully into the clinic, as we speak, and that will round out our current immunotherapy portfolio. Thanks.
Great. And then just following up, you have 1st in MAND data in December for both the Bromo domain and the PIM programs. What are the next steps there?
Yes. So, the, again, those targets, you're right, have completed the early part of their work in terms of getting towards a dose. But for the Bromo domain bed program, we selected the backup compound to go forward with, because had a better PK profile than the lead compound. And we're basically looking at that very carefully to see if there is a root for it in terms of a proof of concept to work with, it does have, on target toxicity in terms of, and we showed this publicly in our presentations from basartapenia. So that'll, you know, we'll have to work very carefully for it.
For PIM, again, a program that we've been cautious with. There are not many competitors left. We have a dose. And again, we look in it, you know, where are the parts forward there in heme malignancies and in combination. Both of them, by the way, have really, really good combination data with RUX.
In myelofibrosis. So it's part of our RUX combination work in MF, but, they're still early programs and, can't declare yet where we where we'd be going and haven't reached proof of concept yet.
Thank you. Our next question is coming from Mark Throm from Cowen And Company. Your line is now live.
Hi. Thanks for taking my questions. If we go back to the GVHD, I know the long term JackFi sales guidance includes the GVHD opportunity. Can you talk about kind of durability that you assume in that guidance? Since that's kind of a big part of this, what the sales potential is.
Are we thinking there's going to be translated population of Jakafi or more like MFMPV where people are on for several years?
So, hi, Mark, it's Barry. So I'll try to answer your question is that for acute GvHD, you know, we have to see the final results of the, Reach 1 study to see what, how long patients stay on therapy. We think we believe that in chronic GvHD, potential could be much greater for persistency, and for the providers long term benefit they have. But remember, patients even with acute GvH can get retreated with the same product or they can go on to get chronic GVHD. So, overall, we think that the opportunity for both acute and chronic DHD, could be quite good.
But we also see the duration of treatment as being much shorter than what you observe in MF And TV. Okay.
And then, Perfect, maybe for you kind of strategically, over the last few years, you've spent some efforts preparing to be a kind of a fully global company with the area, but also going to other territories like Japan, in preparation for epichatostat. And the next things in the pipeline, whether it's GVHD or FGFR just aren't necessarily the same size and breadth of an opportunity as I do. Do you still have the same kind of appetite to be a fully global company or is this more of the kind of traditional insight model for some of these molecules?
It's a good question. The way we the way we organize the expansion and we are happy we did it that way now was to make it proportional to the existing portfolio. So, the way we are organizing the U. S. Is basically there is a team working on Jakafi.
They have very fast growing top line and all of that is, is doing well from the commercial standpoint. Same thing in Europe. In fact, you can see If you look at the numbers, on tonnatinib in Europe, including, is that in fact, the commercial team in Europe is, in fact, is sustained, self sustained with the growth of Panetinib in Europe. So, the fact that we have a delay for our first launch after, including or Jakafi is in fact not changing the strategy and the approach there. We have team also working on development of our new pipeline in Europe, the credit test study, the GFR study, the Delta studies are all running in European Center.
So, all of that is very, is very stable. Obviously, there is a delay in this, you know, the hyper growth of the top line because of a catalyst that moving back to proof of concept. But there is no change in the plan. And concerning Japan, we did the same thing, which is we have a development team there. We started with development.
It's a group of around 10 people today. They are working also on gravitas and the other program. And in spite of the delay on APACADA status, that is not changing. And the Gulf of Japan would be the same as for Europe and U. S.
Is that when we have a product that becomes available for commercialization is when we reduce the scale up of the commercial team. So, there is no I mean, obviously, there is a plant that has been modified, but there is no change in the direction for each of these geographies.
Okay. Thank you.
Thank you. Our next question today is coming from Ren Benjamin from Raymond James. Your line is now live.
Hi, good morning and thanks for taking the questions. Just two, one with GVHD. Stephen, can you remind us the prior data that led you to this trial design in acute and what your expectations are and what are clinically relevant expectations in the REACH1 study?
It actually came from external investigator initiated research from a group of investigators in Germany led by Zaita who showed, in their study, which had approximately 60, 70 patients in, you know, 70, 80% response rates not, you know, it's classic sponsored study with type controls on how you measure endpoints, etcetera, but very, very encouraging proof of concept data. And then we worked to get the rights back to run our graft versus host disease program with RUX. Now, remember, I was teed up the large unmet need here, there's approximately 10,011,000 allogeneic transplant that occur with more than half of them getting graft versus host disease. And then if they aren't steroid responsive, which is about half the patients they have an extreme morbidity and high mortality rates as our outline to you. We got, breakthrough designation here.
We're able with the agency to run a single arm study in steroid refractory acute And where we would like to see the response rate is in the 50% plus territory that's durable. We think if we meet that under the conditions that are just outlined, we'll have, a submission of supplemental NDA in the United States. The Europeans may also be interested in that single arm data, by the way, if it in that territory that I mentioned, but we have a randomized study reached to as well to go to if need be. So hopefully that answers your questions on how we got there on steroid refractory acute.
Yes, yes, it does. I was remembering it in a investigator response or Italian study, but it's probably the German study as well. And then just switching gears to PR3K delta, you have several citadel studies that are ongoing, I think there was an interesting data looking at the synergistic effects in combination with PD-one inhibitor presented at AACR. Can you talk a little bit about this program right now? Cause I thought you were still trying to find the appropriate dosing schedule, how are you thinking about this monotherapy versus combination and how do these studies kind of fold into a pivotal study.
So, yeah, thank you for our question on our PR3 kinase delta inhibitor 50465. In many ways, we did take a time here in that we step back and looked at the class in general and said, we have a second generation compound that seems to have eliminated for the most part the liver toxicity seen with the 1st generation compounds like Adeelisa but there's still long term toxicities probably from chronic T cell suppression like colitis. We knew we had a very active compound we presented this data 2, 3 times already is very high activity in B cell malignancies, particularly in follicular mantle and marginal zone lymphomas But we also knew with time we were going to see some of their long term toxicity. So what we did is dose through sort of an paradigm to get to the efficacy endpoint you want. And most people respond by the time of the first scans at 8, 9 weeks.
And then change thereafter to a different dose and schedule and see what's mediating or changing the dose and schedule we were able to mediate the toxicity profile. And data we showed at ASH last year, again, small numbers and many caveats, that we're able, for the most part, to mediate the toxicity profile. So we think we're in a very good place with a highly active compound that we're able to change the tolerability profile with the dose and scheduling changes. So, now we have ongoing efforts in all the B cell malignancy to fuselage B cell lymphoma, follicular lymphoma, mantle cell and marginal. The class as a whole is more active outside of diffuse large, tends to have more activity in the follicular mantles and marginal zones.
To conducting those studies this calendar year into early next year and hopefully update the next year. If they again meet the required, you know, high response rate that's durable, then they potential accelerated approval strategies in those settings. So that's where we stand with the program. We're proud of what we did in trying to change the profile. We look like we've been able to and now we have to execute the studies to show both the efficacy and tolerability.
And just thoughts regarding combinations.
Yeah, we'll have to follow all of that work, with combinations, in many of those settings. You know, you require 8020 antibody or other compounds. But the initial strategy is monotherapy and then we'll be getting safety with various combinations. We are looking at 50465 in combination with rux in myelofibrosis, because it's very good preclinical rationale all that, the pathway is upregulated in myelofibrosis and we're conducting that study now. And then you alluded to a very early data set.
There was an with a lower dose
of
delta 50465 to try and change the tumor microenvironment for the PD-one inhibitor that we're also looking at currently and there's some early data that there may be some activity with that doublet as well.
Thank you. Our next question is coming from Lisa Baker from JMP Securities. Your line is now live.
Hi. Just a follow-up on GvHD. Can you give us just some sense of how to think about duration of therapy in this population, both frontline and second line and maybe the acute chronic. And I don't know if it's similar across those. And then also for itacitinib, It will be obviously positioning against us in the frontline setting against steroids, which obviously are inexpensive.
How do you kind of anticipate getting share there? What's the strategy for going up against steroids? Thank you.
So, Lisa, it's Steven. I'll try to answer your question first, Evan, Barry alluded to this because we don't have the final data yet. All right. Expectation is that in acute is, once we have the data set and show what the duration of response is, that physicians will use the compound to get control of the graft versus host disease to then eliminate the steroids and then eventually, you know, potentially eliminate the JAK inhibitor as well, once they know patients are controlled. I don't know what that duration will ultimately but it's probably of the order of somewhere around anything between 3 to 9 months approximately, not knowing the data.
But chronic is very dead. It may be slightly different paradigm. These patients, you know, typically have a different disease. They tend to have a lot of skin toxicity And we and it's a longer endpoint. It's a 6 month, response rate endpoint.
So we feel there that the likelihood is very there'll be a longer use pattern of the, of the JAK inhibitor. In that setting and then people will, once they have control of the various organ we'll look at weaning them off the therapy. For itacitinib, it's in, it's steroid naive, but it's in combination with steroids. So, it's an add on therapy. You have to use the steroids as well.
So, it's not it's not verse steroids. It's a it's a sit in a plus steroids versus steroids. In steroid naive. So I hope that's clear, in terms of the schema of the study.
Thank you. Our next question is coming from Christopher Marai from Nomura Securities. Your line is now live.
Hi, thanks for taking the question. Wondering if you could comment perhaps on the arginase inhibitor program with calithera, obviously given the auto data and sort of the T cell related metabolic checkpoint hypothesis there. Perhaps runs through your thoughts on that program potential for combination with they're now in house PD-one? Thank you.
Yeah. Thanks, Chris. This is Reed. So the arginase inhibitor program We, in license and are co developing with Calithera. We've completed, or completing now the phase 1 dose escalation and expansion studies.
The mechanism, as you pointed out, does have some similarities to ID01 and the compound therefore to epacadostat, but there's actually some very important differences as well. Not the least of which is the cell types that express the enzyme and the types of immune complexity that those patients may have, which are actually quite a bit different than those that are ID01 positive. So I don't think there's any direct read through, to arginase from a mechanistic standpoint. Clearly the Epicat experience will color, the kind of stepwise derisking that we take to pursue the arginase inhibitor program and the studies that the clinical team are working on now include both translational studies to to look at effects of the molecule on the immune microenvironment as well as the initial thinking around safety studies to move the agent probably first in the combination with the PD-one antagonist. But right now it's a pre proof of concept mechanism and the translational data we generate over the coming months will be important to any next steps that we make.
Okay. And then just with the reference that translational data, I guess biomarker data coming out the Catasat program second half. Is that something that you think could be informative with respect to the potential clinical fit of this compound? Thank you.
Yeah, again, so the translational work with the Echo-three zero one include PD L1 status, ID L1 status, tumor mutational burden and RNA seek. To the extent that there are learnings from those trials, it's probably going to apply more to the PD-one doublet setting and certainly, to melanoma. So, I think there is a potential for some information content to flow to arginase, but as I mentioned earlier, the types of patients that, we believe are likely to have a dependency on the arginase biology are probably not those that you would normally think of as being in flame tumor types like melanoma. So, in short, probably some
read through, but, but not very much.
Got it. Thank you.
Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to Herve for any further or closing comments.
Okay. Thank you. Thank you for your time today for your questions. So we look forward to seeing you at some of the investor medical conferences, but also at the 20 1st June meeting, we are organizing where we will do a full company update. But for now, thank you again for your participation in the call today and goodbye.
Thank you. That does conclude today's teleconference and webinar. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.