Incyte Corp (INCY) is a small biotech company focused on developing treatments for cancer and inflammatory disorders. Lead compound Ruxolitinib (INCB18424) is awaiting FDA approval for the treatment of Myelofibrosis (MF) with an expected decision date on December 3rd. Ruxolitinib is also recruiting patients in a global Phase III study for Polycythemia Vera, a related blood disorder. A second compound, INCB28050, is in Phase IIb testing for Rheumatoid arthritis with anticipated completion early 2011.

Background:

Ruxolitinib and INCB28050 are small molecule inhibitors of JAK1 and JAK2. There are four JAK kinases, JAK1, JAK2, JAK3, and TYK2, key enzymes involved in the signaling of important cytokines. While their functions often overlap, JAK1 and TYK2 play important roles in inflammation, JAK2 is required for G-CSF signaling, and JAK3 regulates B-cell function.

Ruxolitinib was partnered with Novartis (NVS) on November 25, 2009. Incyte received upfront payment of $210M and potentially $1,100M in developmental in commercialization milestone payments plus with tiered double digit royalties in exchange ex-U.S. rights to the compound. Incyte retained all U.S. rights; each company will pay for studies in their own territories. The two companies will develop Ruxolitinib in multiple oncology indications.

Less than a month later on December 21, 2009, Incyte inked a global licensing deal with Eli Lilly (LLY) for its second candidate, INCB28050, for Rheumatoid arthritis. Incyte netted $90 million upfront and $665 million in milestones. The company has the opportunity to increase its initial 20% royalty rate to the high 20s by opting in and sharing 30% of development costs.

Myelofibrosis:

Incyte presented overwhelmingly positive data from two pivotal Phase III trials, COMFORT-1 and COMFORT-2, for patients with Intermediate-2 or High Risk MF. COMFORT-1 was a U.S. trial enrolling 309 patients randomized 1:1 treatment vs. placebo with final assessment at 24 weeks. The primary endpoint was a 35% reduction in spleen volume as measured by MRI. Secondary endpoints included duration of response, change in total symptom score, and overall survival.

Top line results of COMFORT-1 showed 41.9% of ruxolitinib treated patients achieved a 35% reduction in spleen volume at 24 weeks compared to 0.7% of placebo treated patients, P-value less than 0.0001. 45.9% of treated patients saw a greater than 50% decrease in total symptom score compared to 5.3% for placebo, also highly statistically significant. There was a trend toward an improvement in survival in the ruoxlitinib arm but did not reach statistical significance.

The European COMFORT-2 trial enrolled 219 patients randomized 2:1 drug vs. best available therapy (BAT). Primary endpoint was the same but at 48 weeks instead of 24. Assessment at 48 weeks showed that 28.5% of ruxolitinib treated patients achieved a 35% spleen volume reduction while no patients on BAT did. The response was durable; at the end of the study, 79.7% of patients achieving the 35% spleen volume reduction were still responding. There was a numerical but not statistically significant improvement in overall survival in the treatment arm, p-value 0.58. Symptoms scores also improved in ruxolitinib treated patients compared to BAT, including appetite loss, insomnia, dysnea, pain, and fatigue.

Ruxolitinib has a very good safety profile given at 15 or 20 mg BID in these studies. The only real concerns are anemia (lowering of red blood cells) and thrombocytopenia (lowering of platelets); most patients present with anemia, which the drug may worsen.

If approved, this will be the first drug indicated for the treatment of MF. There is every expectation it will be approved on or before its December 3rd PDUFA date. The company has not been advised of an advisory committee hearing. Technically, the FDA alert the trial sponsor 55 business days ahead of a panel meeting, making October 8th the last day Incyte may be notified. The advisory panel appears increasingly unlikely while an early approval more so. The FDA’s oncology division has been issuing quick decisions this year; Pfizer’s Xalkori was approved five weeks ahead of schedule, Roche’s Zelboraf ahead by two months, and Seattle Genetics’ Adcetris got the green light 11 days early.

The risk is not so much on approval as sales. Myelofibrosis is a small market. Incyte estimates there are approximately 16,000 to 18,500 MF patients in the U.S., divided equally between Severe, Moderate, and Mild disease. Both the company and analysts expect high usage in severe patients, less penetration in moderate disease, and limited use in mild disease. The company previously gave pricing estimates of between $40,000 to $60,000 per year, but in the most recent conference call indicated an inclination to tact toward the high end based on pricing of recent oncology drugs and what is believed to be a very good product profile.

Assuming $60,000 per year and 9,000 patients (18,000 total, reach 100% of severe, 50% of moderate, 0% of mild), the U.S. market opportunity is $540 million in MF. Incyte has hired a sales force of 60 reps to detail the drug. All reps have received one round of training. It expects to be able to begin sending product into sales channels within 14 business of approval. Management expects a slow ramp, peaking in

Ruxolitinib has a strong head start as the first in class and first in disease. The closest competition is likely some three years back. Sanofi Aventis has advanced a compound it got through the acquisition of Targagen into Phase 3, a highly specific JAK2 inhibitor TG101348. It appeared highly effective in reducing spleen size and improving symptoms in midstage trials but is burdened with a poor side-effect profile that includes thrombocytopenia, anemia, diarrhea, nausea, and vomiting. The competitor most are watching is CYT387 from YM Biosciences. This JAK1 / JAK2 inhibitor appears to have the best safety profile next to ruxolitinib and the potential for an anemia benefit. Interim results presented at ASCO showed 58% of transfusion dependent patients treated with CYT387 were transfusion independent after 12 weeks of treatment.

Polycythemia Vera:

Incyte is currently enrolling patients in a Phase III global trial for patients with Polycythemia Vera (PV). Initial Phase II results from patients refractory or intolerant to hydroxyurea were very promising; after a median follow-up of 21 months, 97% of enrolled patients (n=34) achieved hematocrit control to less-than or equal to 45% in the absence of phlebotomy. All patients continued to maintain phlebotomy-independence at the time of their last follow-up visit. Splenomegaly was present in 74% of patients at entry; 80% of patients achieved a greater-than or equal to 50% reduction in palpable spleen length and 68% have achieved complete resolution.

The Phase III trial was designed to mimic the Phase II, with initial plans to enroll 300 patients randomized 1:1 to ruxolitinib vs. best available therapy. The primary endpoint is a composite of hematocrit control in the absence of phlebotomy and greater than 35% reduction in spleen volume at 32 weeks. Secondary endpoints include complete hematologic remission at week 32 and percent of patients maintaining the composite response at 48 weeks and beyond.

Enrollment has been slow, blamed on additional entry requirements requiring white blood cell counts >15,000 and/or platelet >600,000. The company has petitioned the FDA to remove this requirement from the current special protocol agreement (SPA) and reduce total patient accrual to 200 in order to speed up enrollment.

These changes were recently accepted by the FDA, the revised Phase III will be basically identical to the original Phase II. Even with a smaller n, strength of the original data gives confidence in the final outcome. It will, however, be worrisome if recruitment fails to improve upon implementation of these changes.

An estimated 95,000 patients in the U.S. suffer from PV, with the company estimating between 20%-25% being hydroxyurea refractory or intolerant. As these patients have a higher quality of life than severe MF patients and longer life expectancy, lower market penetration is expected. Calculating 10% of the PV market at a $60,000 price tag yields $570 million in potential U.S. sales. It is estimated ruxolitinib could become available for PV by 2014. However, there is likely to be off-label use in this indication once the drug is approved.

Rheumatoid Arthritis:

Eli Lilly is running the RA program and has completed Phase IIa studies with INCB28050. Phase IIb trials are fully enrolled with data expected in the first quarter 2012. Primary endpoints of the Phase IIb trial are identical to the Phase IIa: ACR20 response at 12 weeks though the trial extents to 24 weeks. And while the earlier study tested 4, 7, and 10mg once-daily dosing, this trial is looking at 1,2, 4, and 8mg.

Incyte is testing the lower dose due to similar efficacy seen across all three doses in the Phase IIa trial while the lower dose resulted in somewhat less anemia. At 12 weeks, 32% of placebo treated patients reached ACR20 compared to 52%, 59%, and 53% for the 4mg, 7mg, and 10mg cohorts, respectively.

Safety issues to keep an eye on, though mostly mild, are anemia and increases in both HDL and LDL. Final data from the Phase IIb study will hopefully be presented at EULAR in June 2012 with pivotal Phase III studies beginning by the end of the year.

In oral RA treatments, INCB28050 will be following in the footsteps of Pfizer JAK inhibitor, tofacitinib, which met all primary endpoints in five pivotal trials and may be approved as early as 2012. Both drugs have very clean safety profiles and in fact have some similar safety issues including anemia and lipid increases. Approval of the Pfizer drug will bode well for Incyte. Analysts foresee a multi-billion dollar product for Pfizer (PFE).

Incyte’s compound has the advantage of once-daily dosing compared to twice-a-day for tofacitinib. So far, efficacy appears similar. Analyst peg potential sales of INCB28050 at $1.8 billion; with royalties in the high 20s, this can add another $500 million to Incyte’s top line.

Summary:

Incyte’s three most advanced projects, each with good to high probability of success in the next few years have the combined potential to generate roughly $1.6 billion in peak sales. Both ruxolitinib and INCB28050 will certainly be tested in additional indications, increasing their future value. Ruxolitinib is already in Phase II studies for both solid and hematologic tumors.

JAK kinase is an alluring target and competition will be fierce. However, hitting the target alone is not enough; with such a central role in signaling pathways, safety has emerged a key differentiator. Incyte’s leading position and clean product profiles should allow it to extract considerable value from its discoveries.

Markets are in a “show-me” mode. Even approval may not give much lift to the stock price. It will likely take product sales before the stock really moves. To that end, the company recently showed off an abstract for presentation at ASH next month demonstrating a strong overall survival advantage for ruxolitinib over placebo. This data has the potential to improve the drug's sales outlook.

Incyte has a real story, and if it plays its cards right, can graduate into the big leagues of biotechs. Follow Chimera Research Group as we track Incyte's progress.

Disclosure: Long INCY

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Call it personalized medicine.

What a change a decade makes. Back in 2001, Gilead was a high-fly­ing biotech, in the early legs of its growth pro­jec­tory. Man­age­ment at the time was laser fo­cused on the com­pany’s HIV fran­chise, de­cid­ing to sell its on­col­ogy as­sets to a lit­tle com­pany called OSI Phar­ma­ceu­ti­cals for $200 mil­lion.

Since then, Gilead has grown into a mon­ster stock with $8 bil­lion sales and close to $3 bil­lon in prof­its- be­com­ing one of the best-run op­er­a­tions around.

Be­gin­ning in 2006, re­turned to di­ver­si­fi­ca­tion in a bid to main­tain its growth mo­men­tum. The com­pany’s $365 mil­lion pur­chase of Corus fol­lowed by its $2.5 bil­lion ac­qui­si­tion of Myo­gen made it a player in the pul­monary/res­pi­ra­tory space. CV Ther­a­peu­tics was added on in 2009 for $1.4 bil­lion, adding car­dio­vas­cu­lar med­i­cine its reper­toire.
Sim­ply put, in­vestors were not im­pressed.

But man­age­ment had de­cided on di­ver­si­fi­ca­tion and con­tin­ued to fol­low through. In a sign of things to come, Gilead bought CGI Phar­ma­ceu­ti­cals for $120 mil­lion in June 2010. This was a re­turn to on­col­ogy for Gilead, for CGI spe­cial­ized in de­sign­ing ki­nase in­hibitors to treat can­cer and in­flam­ma­tory dis­eases. The com­pany’s SYK ki­nase in­hibitor may have drawn the most in­ter­est due to the ef­fi­cacy seen by such an in­hibitor from Rigel.

Be­fore the year ended, Gilead had made an­other small ac­qui­si­tion, Ar­resto Phar­ma­ceu­ti­cals, for $225 mil­lion. Ar­resto had a lead an­ti­body in Phase I clin­i­cal tri­als for both solid tu­mors and Id­io­pathic Pul­monary Fi­bro­sis (IPF). This was Gilead firs foray into an­ti­body ther­a­pies. Ar­resto was a step up from the CGI ac­qui­si­tion; the drug can­di­date was fur­ther along in de­vel­op­ment and the price was higher. The mol­e­cule also took on in­creased im­por­tance when am­brisen­tan from Myo­gen failed in a trial for IPF. This new an­ti­body was now Gilead’s lead IPF can­di­date.

Now, barely two months af­ter swal­low­ing Ar­resto, Gilead has an­nounced the ac­qui­si­tion of Seat­tle based Cal­is­toga Phar­ma­ceu­ti­cals for $375 mil­lion down and $225 mil­lion in fu­ture mile­stones. The trend con­tin­ues, higher price, more ma­ture com­pound. I posted an ar­ti­cle on the mer­its of Cal­is­toga back in June last year. Their main prod­uct is CAL-101, a se­lec­tive in­hibitor of PI3K delta (there’s an al­pha­bet soup of PI3 ki­nases). Most PI3K in­hibitors in the clinic to­day are not highly spe­cific; the delta iso­form has seen its pro­file in­crease sub­stan­tially as un­der­stand­ing of the path­way grows. It is seen as a key me­di­a­tor of in­flam­ma­tion and can­cer cell sur­vival.

With Cal­is­toga in its fold, Gilead in­stantly be­comes a le­git­i­mate player in con­col­ogy. CAL-101 has shown im­pres­sive re­sults in in­dolant non-hodgkin’s lym­phoma (iNHL), and chronic lym­pho­cytic lym­phoma (CLL) in early stage stud­ies both as sin­gle agent and in com­bi­na­tion with other drugs, in­clud­ing Rit­uxin. In com­par­i­son, most PI3K in­hibitors in de­vel­opm­net show only mod­est ac­tiv­ity as sin­gle agent and are ex­pected to be ef­fi­ca­cious only in com­bi­na­tion treat­ment.

Cal­is­toga had been plan­ning a reg­is­tra­tion trial for lead com­pound CAL-101, orig­i­nally set to start this year. it will now de­pend on Gilead go­ing for­ward.

By the end of 2011, Gilead will have a promis­ing pipeline of on­col­ogy pro­jects rang­ing from pre-clin­i­cal to Phase III. It may be time to give the com­pany an­other look.

The fund allows Lilly to leverage its research spending, allowing it to test a larger number of molecules. “Innovating on innovation,” said Robert W. Armstrong, Lilly’s vice president, global external research and development, regarding the new venture capital fund.

Only time will tell whether anything will come of these latter developments. Lilly has been enamored with its Chorus division; it has now been cloned, with units in the US, Europe, UK, and India. Call me a skeptic- after nine years of existence I would expect a molecule from Chorus in late phase development to call it a success; a unit designed to crank out data seems rather useless.

Eli Lilly is in a tough spot. Between now and 2016, half its revenue is at risk due to patent expirations. The company boasts over 60 compounds in its pipeline, but has been beset lately by late stage failures. It hopes to begin gaining two approvals per year beginning in 2013 to dig itself out of its hole. This would be quite a feat considering only 21 new drugs were approved by the FDA in all of 2010.

Perhaps it’s time to turn away from “innovating on innovation” and simply go back to conducting research. Perhaps cheap and fast drug development is but an illusion.

Avastin, while a targeted therapy that shuts down new blood vessel formation, or angiogenesis, is broadly applicable across many tumor types; individuals are not tested for any particular tumor markers or mutations. That may change with this decision as company officials negotiate with the FDA. Roche is now considering studies to identify populations of breast cancer patients who will benefit from Avastin, continuing its march toward personalized medicine.

Berkeley based Plexxikon’s strategy with PLX4032 has always been the delivery of personalized medicine. This small molecule compound is a potent and selective inhibitor of mutated BRAF V600E, an oncogenic protein found in about half of melanomas as well as other solid tumors, particularly thyroid and colorectal cancer.

Plexxikon first began working on this compound in 2002 with the discovery of BRAF V600E in melanomas during the Cancer Genome Project. BRAF is a member of the MAPK pathway, transmitting signals from the cell surface to the nucleus to regulate survival and proliferation. Its mutated form is overactive, and under certain conditions, turns the cell cancerous. PLX4032 preferentially inhibits the mutated BRAF. In vitro studies showed cells harboring the V600E mutation were susceptible to the compound while wild-type cells were not.

In September 2006, Plexxikon filed an IND for the compound to begin clinical testing; a month later, Roche signed an agreement with Plexxikon for worldwide rights to PLX4032 in return for $40 million upfront and up to $660 million in milestones as well as royalties.

Roche's timing could not have been better. Even before the Phase I trial was complete, data was so compelling that the company began Phase II and Phase III studies. In a small Phase I study, tumors shrank by at least 30 percent in 24 of the 32 patients, with tumors disappearing completely in two patients. This was unheard of for metastatic melanoma.

Earlier this January, Plexxikon and Roche announced positive interim results of their 675 patient, randomized, open-label Phase III trial, BRIM3, indicating patients treated with PLX4032 had an improved overall survival (OS) and longer progression-free survival (PFS) compared to patients treated with dacarbazine, the current standard of care. The pre-specified endpoints for both of these criteria had been met.

Specific data has not been released and will be presented at a major scientific conference later this year. A regulatory filing for the drug along with its co-developed companion diagnostic to detect mutated BRAF is expected in 2011. Sales projections range from $500 million to over $1 billion.

This isn't the end of the road for the BRAF project. Researchers have noted that although patients respond very well to PLX4032 initially, resistance is seen over time. New multi-targeted molecules from Plexxikon aim to solve this problem by simultaneously hitting BRAF and the PI3K pathway.

An early investment in Immunogen is also paying off in a big way for Roche. For a mere $3 million upfront, $40 million in milestones, and mid-single digit royalties, Genentech (now Roche) gained worldwide rights to use Immunogen's antibody drug conjugation (ADC) technology. The technology, known as Tumor-Activated Prodrug (TAP) consisted of Immunogen's proprietary maytansinoid toxin and antibody-drug linker.

The first antibody Genentech fitted out with this technology was its blockbuster HER2 targeted breast cancer drug, Herceptin. The new drug, Trastuzumab-DM1, or T-DM1, if successful, had the potential to maintain Genentech's breast cancer therapy franchise.

Although effective, some patients continue to progress after Herceptin treatment. Side effects may also be harsh due to the need for concurrent treatment with chemotherapy drugs. An armed Herceptin carrying a highly potent payload could potentially negate the need for concurrent chemotherapy, reducing side-effects. Herceptin is also associated with cardiotoxicity due to previous treatment with doxorubicin; this is also expected to be eliminated with the use of the T-DM1 conjugate.

By 2002, promising preclinical data in mice showed tumors resistanct to Herceptin were exquisitely sensitive to T-DM1. In 2010, Genentech filed an accelerated BLA with the FDA based on strong data from a single armed Phase II trial of T-DM1 in highly refractory HER2 positive breast cancer patients. Results of the trial showed T-DM1 treatment shrank tumors in one-third of these patients. But to the company's surprise, the FDA rejected its BLA, saying all lines of treatment have not been exhausted for patients entering the trial. As usual, the FDA was unpredictable as ever.

This setback knocked a couple points off Roche's stock, but cut Immunogen's in half. Yet it was far from a death knell. The rationale behind antibody drug conjugates is now stronger than ever. Roche has a series of wide-ranging trials for T-DM1, from first line to combination to refractory, and even has plans for its use in adjuvant, or preventative therapy.

Recent results from a small Phase II of 137 women presented at the European Society of Medical Oncology (ESMO) in October 2010 showed that after six months, patients on T-DM1 had an overall response rate of 48% compared to 41% for Herceptin plus a taxane. For this patient size, the results were considered comparable. Perhaps more impressive, the rates of clinically relevant adverse events were much lower in the T-DM1 group at 37 percent, compared to 75 percent for women on Herceptin plus Taxotere.

An ongoing Phase III trial, EMILIA, is evaluating T-DM1 for second line use in preparation for marketing approval in the US and Europe in 2012. Roche estimates peak sales for T-DM1 could reach between $2-5 billion.

Pundits have speculated personalized medicines would require companies to sacrifice sales due to the smaller markets available for each targeted drug. It would appear this is not necessarily the case as seen by potential blockbusters PLX4032 and T-DM1.

The genomics and proteomics revolution has produced thousands of new targets for drug discovery. Designing molecules with novel mechanisms is sexy and can be very rewarding but is risky and time consuming- though some would say this novelty and pursuit of innovation is the embodiment of the biotech industry.

But the pursuit of innovation requires a large investment in research to define a target’s role in human biology, to validate its relevance in human disease. Even after this early validation, there is no guarantee that modulation of this target will result in an effective treatment in humans.

There is another path. Through years of research, many drug targets have already been validated. Academic and industry researchers alike have published peer-reviewed papers on many of the most interesting targets. A review of the scientific literature can provide an enormous amount of information on important targets.

For even more highly validated targets, companies can look to the competition. Has the molecule entered clinical studies, if so, what stage? The farther along a molecule has progressed, the more the target has been de-risked. No longer does a company talk about “first in class,” the goal is to be “best in class”.

A first in class drug provides the manufacturer with a period of market exclusivity free of competition from similar drugs. Companies that pursue the development of a more validated target with a “follow-on” drug will face competition immediately upon approval even as the development risk has been reduced.

To compete, they must differentiate their products. The benefits of being first to market, however, may be offset by the risk of developing drugs with novel mechanisms of action and unproven targets. (Drug Discovery Today, May 2009)

According to Tufts Center for the Study of Drug Development (CSDD), the average time to market entry of follow-on drugs has decreased to 1.3 years in the 1990s from 5.1 years in the 1960s. This is a very short time for a drug to be on the market before competition arrives. Although competition does not necessarily lead to price reduction, it can have a deliterious effect on market share.

Moreover, an analysis by McKinsey & Company showed that “fast-followers”, those who arrive on the market between 2-5 years after the first drug, actually fared better than the innovators, with significantly higher median sales. Suprisingly, follow-on drugs coming to market even 15 years after the innovators were just as successful as the first drugs.

The fact is first-in-class drugs may not ultimately be the best-in-class drugs on the market. With the incredible pace of scientific research, each passing day leads to an increase in the understanding of a drug target- knowledge that may benefit the follow-on drug makers.

While the innovator drug is in development, makers of follow-on drugs have the ability to survey the competitive landscape and decide on a project based on its scientific and financial merits. They can also glean information from drugs in development ahead of them, giving them the chance to improve on the first-in-class drug even before it hits the market.

Innovator drugs also end up paving the way for the follow-on drugs. They may face increased scrutiny from the FDA with their novel mechanism of action. Provenge is a good example: as a cancer vaccine, it was certainly in a class of its own- Dendreon, the drug’s maker, needed to assuage the FDA’s concerns on issues such as how the drug prolonged survival without shrinking tumors. But with its approval, future cancer vaccine makers will know what to expect when presenting their data to the FDA, and the FDA will be experienced in the handling of cancer vaccines.

Even after navigating regulatory hurdles, makers of innovator drugs must educate patients, physicians, and payers on the merits of their drugs, in essence, creating a new market that follow-on drugs can exploit. Before Viagra came along, the world had never heard of erectile dysfuntion drugs. Heavy advertising and other promotions by Pfizer made Viagra a household name.

Even so, the follow-on drug, Cialis, from Lilly, eventually overtook Viagra in market share due to its improved convenience. In another example, Lovastatin heralded the market for the class of cholesterol lowering drugs known as statins in 1987 while Lipitor was not approved until 1997, but today, Lipitor is the world’s best selling drug.

What is the most exciting class of drugs in development today? Some would say Phosphoinositide 3-Kinase (PI3K) inhibitors. This is not a new target- the first paper on PI3K was published in 1990 and an inhibitor was identified in 1993.

Such targeted therapies have made it easier for companies to make follow-on compounds quickly. Once a target has been validated, future competitors know exactly what to pursue. This is especially true with today’s popular kinase inhibitors, where compounds usually act on the target’s ATP binding site.

In December 2006, the first PI3K inhibitor, BEZ235, from Novartis entered the clinic; since then, at least ten more have joined it. Though none of these have yet to pass Phase II development, new generations of inhibitors are already close behind. That is the speed of follow-on drug development today.

The data show that it is financially more advantageous to pursue a follow-on drug than attempt to pave the way with an innovator drug and novel mechanism of action. This does not mean the end of innovative medicine, for there can be no follow-on drug without the initial pioneering drug to follow.

What it shows is the follow-on drug strategy is a very good one and is well suited for managing the risks of drug development. It is also of benefit to patients, as drug makers attempt to improve on their predecessors with each new compound they put into the clinic, aiming for the best-in-class drug.