Thursday, January 13, 2011

Incyte Set for a Great Year in 2011?

Incyte Corporation $INCY looks set for an exciting year in 2011.Incyte has a few catalysts which, I believe, could lead to a substantial re-rating. I bought a small position, but would caution that the company’s outcomes will be guided by its lead compound. Any failure to execute on this program will hurt Incyte significantly. On balance, I think it is worth buying.

Incyte’s Pipeline in 2011

 Incyte could end the year with its first drug on the market with INCB18424. This drug is the co’s lead compound in clinical trials and, is a JAK-2 inhibitor which is currently in Phase III for myelofibrosis. Initial results were given in December 2010 and were positive, which suggests that if Incyte announce good final results by Q2 2011, than INCB18424 could get FDA approval by year end. In fact, this looks set to be the first approved JAK inhibitor for any indication. Incyte also has this drug in Phase II trials for Polycythemia Vera and Essential Thrombocythemia.

The second catalyst will be the results of the phase II trial with another JAK inhibitor, INCB28050, which is in clinical trials for Rheumatoid Arthritis. Incyte recently gave excellent Phase IIa results and, moved into Phase IIb trials in late 2010. I have featured this, amongst others, in an article on drugs in clinical trials for Rheumatoid Arthritis, found here
A third catalyst could be a partnership deal for INCB13739, which is an 11beta-HSD1 inhibitor. It gave good Phase II results in 2009 in reducing HbA1c, blood glucose, insulin resistance and cholesterol levels in patients with Type 2 Diabetes. Incyte are looking for a partner but as yet, have no deal.

Finally, Incyte has a few programs in early stage clinical trials including a Sheddase inhibitor INCB7839 for breast cancer.

INCB18424 a JAK-2 Inhibitor in Phase III Trials for Myelofibrosis

Incyte is partnered with Novartis for this drug. However, there are another two JAK inhibitors that, according to the principal investigator for both, Mayo Clinic, are producing significant responses in myelofibrosis. The first drug is YM Bioscience’s CTY387. According to Ayalew Tefferi of Mayo Clinic…

‘CYT387 not only works to reduce spleen size and to help with other symptoms, but it is the first in its class to show a significant response rate in anemia in myelofibrosis patients’
…and this anemia response affect, would appear to give YM Bioscience an edge. However, I would caution against getting too worried for Incyte, just yet. This was a Phase I/II trial with only 36 patients and CYT387 is years-and clinical trials-behind INCB18424.  YM Bioscience is looking for a partnering deal and, I suspect they will get it. CYT387 reduced spleen size by 50% in 37% of patients who achieved spleen reduction (97% of patients) in this trial.

The other potential competitor is TargeGen’s TG101348 whose Phase I/II results were so impressive that Sanofi-Aventis bought the company. More studies are underway.  Although the results were impressive, they too, are years behind Incyte’s drug. According to Mayo, TG101348 reduced spleen size by 50% in 72% of the responders (95%) in the trial.

As for INCB18424, Incyte released data from the Phase III trial involving 309 patients

The primary endpoint was the response rate defined as the percentage of patients achieving a 35% or greater reduction in spleen volume at 24 weeks as measured by magnetic resonance imaging, or computerized tomography, comparing the rates in patients receiving INCB18424 or placebo. The response rate was 42% in patients randomized to INCB18424 versus less than 1% of patients randomized to placebo
The drug is also in a European 219 patient Phase III, trial, with results due by mid 2011.  According to the JP Morgan Presentation, Incyte feel that there are 16-18,500 myelofibrosis sufferers in the US and the potential pricing could be around $50k. They believe there are 95,000 PV/ET sufferers.

Assuming, they grab 25% of the myelofibrosis market (not all sufferers will be eligible) and 10% of the PV/ET markets this could give around 14k*50k=700m in US revenue in 5-6 years. A hand waving guess sees Ex-US sales royalty bringing in 10% of that figure, so possibly around 770m.

In addition, this is the type of indication that will see favorable demographics in future years, as the amount of older people increases.

INCB28050 a JAK Inhibitor for Rheumatoid Arthritis

This drug is in partnership with Eli Lilly. I have written extensively about the drugs in development for Rheumatoid Arthritis here. As discussed in the article, tasocitinib is the leader and is set to be a blockbuster drug for Pfizer. Furthermore, Rigel/AstraZenexa has R788 in Phase II trials and, Vertex is currently in Phase IIa with VX509.

Incyte has much to do, to grab market share in this potentially crowded space. INCB28050 Phase IIa results were excellent…

ACR responses improved between week 12 and week 24 achieving up to 72% for ACR20, 44% for ACR50 and 30% for ACR70 at week 24. Results seen at 12 weeks for placebo were 32% for ACR20, 13% for ACR50 and 3% for ACR70, and for patients treated with INCB28050 the results were up to 59% for ACR20, 35% for ACR50 and 16% for ACR70.
…and compare to tasocitinib in Phase III and R788 in Phase IIb. However, Pfizer are way ahead here and I find it hard to see that Incyte has a huge chance to grab a major market share. However, they may not need to!

Future Market for Rheumatoid Arthritis and INCB28050

This is very hard to predict. However, I want to look at the predicted sales for the TNF Blockers. TNF blocker biologics like Humira (injected on alternate weeks) Enbrel (injected once a week) or Remicade (intravenous every month or so) are the current ‘new’ class of drug for RA. According to a Reuters article, Humira sales in 2014 will be $8.5bn, Enbrel $8bn and Remicade $7.6bn.

These drugs are responsive in 70% of patients, including some who do not respond to the first line treatment of methotrexate. However, they are expensive and have significant side effects. JAK inhibitors tend to be taken orally, so they have an advantage and they may end up having better safety.

Adding up the 2014 forecast for TNF-blocker sales gives $24bn. I think JAK inhibitors will initially grab some market from the non-responders (20-30% of patients) and, in time, start to take market share from them. Analysts are forecasting $2bn for tasocitinib sales. If Incyte can achieve 5-10% of these sales this would give around $100-200m in US sales and, possibly $200-$400m including outside US sales. Assuming, a 17.5% royalty would give peak sales of around $50m

A Good Year for Incyte?

In 2011, Incyte are aiming for good results in Phase III in myelofibrosis plus submission by year end.  Incyte is also in Phase IIb in Rheumatoid Arthritis and, they may yet surprise with a partnering deal for the novel compound for type 2 diabetes.

Adding the two guesstimates together (770+52m) gives 822m by 2017, with 90% margin, 150m in SG&A and say, 170m in R & D, this suggests around $420m in operating profits. They have tax losses so I would expect this to drop into cash flow and give around $500m. They have enough cash before they will launch their new drug, so I think a figure of $1.5bn in cash by 2018 is not unreasonable. The current market cap is 1.97bn.

I bought some.

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Mayo Clinic ‘JAK inhibitors producing significant response in myelofibrosis patients’,, accessed 13 Jan 2010

All Incyte Clinical Trial Data from Incyte Website, accessed 13 Jan 2010