Incyte: Myelofibrosis Drug Looks Promising

Dec.27.10 | About: Incyte Corporation (INCY)

Earlier this week, Incyte (NASDAQ:INCY) announced positive phase III results for its lead agent, INCB424, in myelofibrosis (MF). Although the full data set was not published, it will almost certainly lead to FDA approval, opening up a $200-$300 market in the US alone. Another similar phase III trial which will be reported in the coming months should support approval in Europe as well.

Unprecedented results

Based on the press release and conference call last Monday, results were basically in line with published phase II results which were extremely positive. The primary endpoint (percentage of patients achieving a 35% reduction in spleen volume) was easily met, as 42% of patients in the drug arm responded vs. less than 1% in the placebo arm. INCB424 was also highly superior to placebo in terms of reduction of symptoms, which represents a highly unmet need in these patients.

With the positive data, Incyte is concluding a year packed with achievements. These include removal of the short term debt overhang (discussed here), $69M in milestone payments from partners, positive phase II data with INCB050 and INCB424 in rheumatoid arthritis and PV (polycythemia vera), respectively, and initiation of a global phase III in PV.

Competition intensifies

Incyte’s drug will probably be the first ever FDA approved drug for myelofibrosis, however, investors should expect competition to emerge several years down the road. INCB424’s direct competitors are drugs with similar mode of action from YM Biosciences (YMI), Sanofi (NYSE:SNY) and Onyx (NASDAQ:ONXX), all of which are Jak inhibitors. Celgene’s (NASDAQ:CELG) pomalidomide is in phase III testing, but seems to have a different and more subtle effect in myelofibrosis.

Until recently, Incyte’s leadership position was unquestionable, as it had what seemed to be a best in class drug with a 3 year lead over competition. Therefore, by the time a competitor hits the market, even with comparable activity, it will encounter a well-established agent as the standard of care. The only major threat to Incyte could be a compound with a differentiated clinical profile in terms of superior safety or efficacy. This is exactly what YM Biosciences claims to have.

At the recent ASH conference, YM Biosciences presented results for its Jak inhibitor, CYT387, in myelofibrosis. Last year, it was Incyte who stole the show with stellar results in MF. This year it was YM Biosciences’ controversial presentation that got people’s attention.

CYT387 was originally developed by Australia-based Cytopia, which was acquired by YM Biosciences last year. At ASH, investigators presented results from 60 patients, which showed the drug definitely has activity in terms of spleen reduction and symptom alleviation. Although it is hard to reach definitive conclusions with respect to these endpoints in comparison to Incyte’s drug, the data set included allegedly an additional effect on anemia that has not been observed with INCB424.

Anemia is a common complication in MF patients, which often requires patients to receive blood transfusions. To date, Jak inhibitors exhibited little to no effect on anemia, and in some cases even caused anemia in non anemic patients. In contrast, the CYT387 data set included a 50% anemia response, which, if real, could become an important competitive advantage.

So, is CYT387’s anemia effect real?

It depends on who you ask.

The primary investigator for CYT378 clearly highlighted that this is a clear differentiating factor for CYT378, as it was evaluated using similar criteria to those used in Incyte’s trial. Many, including Incyte, claim that it is impossible to compare the anemia effect of the two drugs since YM Biosciences used different definitions for assessing anemia. When asked about this issue during a presentation conducted by YM Biosciences, Dr. Ayalew Tefferi from the Mayo clinic, who also participated in the INCB424 study, replied by calling it “dishonest and inaccurate information”.

Jonathan Aschoff from Brean Murray issued a note claiming that the two studies used different criteria for defining anemia and transfusion independence. According to Aschoff, when the INCB424 data is normalized according to the CYT387 criteria, the two drugs seem comparable in terms of anemia resolution.

Incyte at ASH 2010

Regardless of the CYT387 debate, the meeting was a positive event for Incyte, which presented impressive data for INCB424 in two additional indications: polycythemia vera (PV) and essential thrombocythemia (ET). PV and ET are two blood disorders with cancer features, similarly to myelofibrosis. In PV patients, the drug led to a profound reduction of spleen size in the majority of patients with enlarged spleen, a hallmark complication of the disease. In 39 patients with ET, a disease characterized by over production of platelets, 79% achieved a marked reduction in platelet count and 49% saw normalization in platelet count. Of note, patients were refractory or intolerant to hydroxyurea, a commonly used drug for these conditions.

These results in PV laid the groundwork for the recently initiated phase III trial in Europe and the US. Similarly to INCB424’s development program in MF, the PV program is very attractive given the lack of approved treatments and the dramatic effect INCB424 has. This enables Incyte and its partner Novartis (NYSE:NVS) to get the drug on the market using a relatively small (300 patients) and short study (~2.5 years). Assuming results are positive, INCB424 is looking at a market opportunity of $200M-$300M in the US alone.

Portfolio updates

Last week, we added YM Biosciences following the data at ASH. The jury is still out on the anemia question despite investigators’ clear enthusiasm. Regardless, the drug is clearly active in myelofibrosis with potential utility in other myeloproliferative diseases such as PV and ET as well as inflammatory disease. The global market for myeloproliferative diseases is estimated at ~$1.5B while the market for inflammatory diseases is substantially larger. With a market cap of under $200M, even if YM Biosciences captures a 5% market share of the Jak inhibitors market, the company represents an attractive investment opportunity. The data at ASH should enable YM Biosciences to strike a lucrative licensing deal in 2011.

This week, we are selling the second position in Immunogen (NASDAQ:IMGN) we initiated a year ago. We are retaining our larger core position in the company.

Portfolio holdings as of Dec 26th, 2010

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Disclosure: I am long INCY, YMI.