2009.08.10 – Incyte Presents Investors with Unique Dilemmas


Incyte Presents Investors with Unique Dilemmas

by: Ohad Hammer August 10, 2009

A drug with an almost certain approval and immediate sales potential of hundreds of millions of dollars is an asset very few biotech companies possess. In that sense, Incyte (INCY), which is developing a breakthrough drug for blood disorders, represents a unique opportunity in an industry plagued by risk and uncertainty. Incyte is also unique in its problematic capital structure, which makes an otherwise simple investment decision a tricky one.

Incyte’s lead drug is INCB18424 (aka 424), currently in two registration trials in myelofibrosis (MF). Myelofibrosis is a blood disorder in which the bone marrow becomes dysfunctional. MF Patients, who often have enlarged spleen and anemia, suffer from a myriad of symptoms including infections, chronic fatigue, fever and weight loss. On average, patients survive five years from diagnosis as a result of infection, bleeding and organ failure. There are currently no approved drugs for MF and most patients are treated with drugs that alleviate symptoms, but typically have little impact on the course of the disease.

Commercial opportunity

Quantifying the opportunity in myelofibrosis is difficult, as there are only rough estimates as to the actual number of patients who are living with MF. According to Incyte, there are approximately 14 thousand MF patients in the US. This figure is substantially lower than other sources such as the MPD foundation, which suggests a prevalence of 40 thousand patients in the US. Sticking with the company’s estimation, and assuming an average price of about $15k per patient per year (which is consistent with other drugs for chronic diseases), the market potential for 424 as a MF drug is $210 million in the US. Together with Europe and Japan, the market potential in MF could reach $500M annually.

424 is also being evaluated in two phase II trials for additional indications. The first phase II study is in additional blood disorders that are similar to MF, but are more common, with a prevalence of about 175k patients in the US. The company will present updated data from this phase II trial at the ASH meeting this December, and according to management remarks during the recent quarterly call, results are encouraging. The drug is also in a phase II trial in psoriasis, where a topical version is used. Initial data read out from the trial is scheduled for September.

Incyte’s development strategy

424 belongs to a novel class of drugs called Jak inhibitors. These drugs inhibit the protein Jak, which is implicated in the development of many diseases, including autoimmune disorders and blood cancer. The most prominent Jak inhibitor in development is Pfizer’s (PFE) CP-690,550, currently in a pivotal study in Rheumatoid Arthritis (RA).

424 also has activity in RA, but Incyte chose MF as a primary indication. The market opportunity in RA is much greater, but it is also a crowded market characterized by a long and expensive development path. In contrast to RA, MF seems like an ideal indication for small companies such as Incyte, as it represents a substantial commercial opportunity coupled with a cheap and fast route to market. The allure of MF as an indication is further enhanced by the lack of approved drugs, which could make patients and physicians very receptive towards new treatment options. Last, there was a strong scientific rationale to start with MF, since 50% of MF patients carry a mutation in a gene for a specific Jak subtype called Jak2. 424 hits primarily Jak2 whereas Pfizer’s compound primarily inhibits a different subtype – Jak3.

So far, Incyte’s strategy proved successful. If everything goes according to plans, 424 will be the first ever Jak inhibitor to reach the market as well as the first ever approved drug for MF, thanks to unprecedented efficacy and a reasonable safety profile.

A fixed fight

Incyte is regarded as an attractive investment because it can offer investors what only a handful of biotech companies can: An extremely high likelihood of approval. Obviously, there is never a 100% guarantee in a clinical trial, but given the specific study design and the data 424 has generated to date, the drug’s approval is almost inevitable.

The company is enrolling patients in two registration trials, one in North America and the other in Europe. The two studies are similar in terms of patient population and endpoints with several minor differences. The most notable difference is treatment duration, as the US trial will evaluate spleen size after 24 weeks and the EU trial will evaluate spleen size after 48 weeks of treatment. As a result, Incyte hopes to file for FDA approval during the fourth quarter of 2010, followed by European filing in the second half of 2011.

Clinical benefit in MF can be measured based on three main criteria: reduction in spleen size, improvement in symptoms, and resolution of anemia. So far, 424 has been given to more than 200 patients at multiple doses and had a dramatic effect on spleen size, with a rapid and significant reduction. The drug also generated a dramatic improvement in disease symptoms, but unfortunately had little effect on the anemia associated with the disease. The most promising drug for MF-related anemia is Celgene’s (CELG) pomalidomide, which showed very encouraging resolution of anemia. Consequently, there is a strong rationale for combining the two drugs.

Regulators on both sides of the Atlantic agreed to approve Incyte’s drug based on reduction in spleen size. The primary endpoint of the studies is the percentage of patients achieving a 35% reduction in spleen size following a predefined treatment period. It is important to note that the ultimate goal in myelofibrosis is increased survival, however, in order to prove that, very long and large studies are needed. Fortunately for Incyte, the FDA and the EMEA agreed to settle for short term endpoints and quality of life assessments.

As there are no approved drugs for myelofibrosis, 424 is being compared to placebo, which is always better than being tested against another drug with proven activity. Patients in the placebo arm may continue to receive other standard treatments, such as hydroxyurea and infusions, through the course of the studies. The same supportive treatments will also be given to patients in the 424 arm, so that any additive benefit of 424 would be easily observed.

In addition, based on the available data, 424’s ability to reduce spleen size was so profound and dramatic that the trial looks like a “fixed fight”. According to the company, 424 led to a durable 35% reduction in spleen size in about half of the patients. Patients in the placebo arm are very unlikely to experience such a dramatic benefit, even with supportive care.

The registration trials will also evaluate 424’s ability to alleviate disease symptoms, which will be assessed based on patient self reporting. Subjective metrics are always more prone to a “placebo effect”, as can be seen in Rheumatoid arthritis trials. Nevertheless, according to physicians, the placebo effect in MF is expected to be marginal, based on previous trials with ineffective drugs.

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