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As only the second JAK inhibitor to enter phase III trials, Incyte’s (NASDAQ:INCY) INCB18424 has already attracted a fair amount of attention. This attention turned into hard cash Wednesday with a chunky licensing deal struck with Novartis (NYSE:NVS), which has bought ex-US rights to the compound and another earlier stage product for $210 million upfront, with future milestones potentially worth another $1.1 billion.

Interestingly, this deal has been forged only a couple of weeks ahead of the release of a tranche of phase II data on the drug, due to be presented at the American Society of Hematology (ASH) meeting. Abstracts already released suggest that the studies are going to point to much bigger potential for ‘424 beyond its lead indication myelofibrosis, which is already viewed as a blockbuster opportunity. Still, the less than effusive reaction seen on the stock market to today’s news, with Incyte shares up 7% in early trade, suggests that many have already bought into the optimism around this product.

Hopes for positive data

Analysts have already commented that the abstracts of the papers due to be presented at ASH suggest ‘424 is highly active in patients with advanced polycythemia vera and essential thrombocythemia. They are related to myelofibrosis, and some believe that together they could be equally as valuable as indications.

Establishing a very benign safety profile will be the key for success in these two conditions, which are not as immediately life threatening as myelofibrosis.

Another study to be presented at ASH will be a long term follow up from a mid-stage myelofibrosis study; again the abstract looks encouraging and has raised hopes for a positive outcome in the ongoing phase III programme.

Novel compounds

Incyte’s drug is a JAK1/2 inhibitor, under normal circumstances activation of JAK2 stimulates blood cell production, but genetic mutations in the enzyme are implicated in myeloproliferative diseases, hence the many research projects in this area with these compounds (Therapeutic focus - Second JAK inhibitor enters pivotal trials, July 31, 2009).

There is only one other JAK inhibitor in pivotal trials, Pfizer’s (NYSE:PFE) JAK3 CP-690,550, which is under investigation for rheumatoid arthritis; the prospect of being at the forefront of this new field clearly proved too tempting for Novartis. The deal also includes worldwide rights to INCB28060, an oral cMET inhibitor that is about to enter phase I development in multiple cancers.

Either way, the deal looks like going down as one of the biggest deals of 2009 (Vantage Point – Big pharma increasingly circumspect on licensing front, October 9, 2009). Incyte raised $500 million in September through the sale of convertible notes and new stock, but this was largely to refinance a big debt pile due in 2011. With enough cash to last into 2011, this runway will now be significantly extended with the Novartis payments.

Continued interest

Incyte has already started two pivotal trials with ‘424 in the myelofibrosis, one in Europe, which Novartis will now take over and fund, and one in the US. Of the upfront payments received under the deal, $60 million was termed a milestone payment related to the start of the European trial. The primary endpoints are the proportion of patients showing a greater than 35% reduction in spleen volume and final data should be due towards the end of 2010.

Analysts are across the board confident in the outcome of these trials. Consensus for US sales in 2014 already sits at $254 million, according to EvaluatePharma, based on a launch in 2011.

Even when assuming only a 75% probability of the product reaching the market and adjusting consensus accordingly, these forecasts value ‘424 at $1.40 billion, according to EvaluatePharma’s NPV Analyzer. Incyte’s current market value is approaching $1 billion, respectable enough for a company without any marketed products and largely reflecting the value attached to this one project.

Both figures, the market cap and NPV, illustrate just how optimistic investors are about the future of ‘424. It looks like the ASH data due will reinforce these opinions.

Although the share price rise today was not huge, at $8.25 the stock is at 14-month highs. With pivotal data due in about a year, not long to wait in the drug development world, and Incyte now in a very strong financial position, enthusiasm for this stock could well continue throughout 2010.