Ohad Hammer's  Instablog

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On top its JAK programs, Incyte has been developing two additional programs it intends to out-license. The first program is INCB13739 for diabetes, which already reached clinical proof of concept and could be licensed imminently. The second program, INCB7839 for breast cancer, is less advanced but could become very interesting later this year depending on data from an ongoing trial.

Last week, Incyte (INCY) sold over $130M worth of stock and $400M worth of convertible debt in an effort to solve its balance sheet issues. Thanks to the stronger cash position, the company can finally be evaluated based on its promising pipeline rather than its capital structure. More importantly, it will be able to complete a series of business development deals and focus on becoming a commercial stage company.

As I explained in a previous article, the company presented investors with a dilemma. Fundamentally, it had a potential blockbuster with a high likelihood of reaching the market in 2011, whereas financially, it was heading for insolvency, with ~$150M in cash and more than $400M in debt (due 2011) as of the end of Q2. To make things more complicated, Incyte was trying to get a lucrative deal for its lead drug candidate, INCB18424 (424), but the company’s shaky financial position diminished its negotiation leverage. The debt overhang also put pressure on the stock, which prevented Incyte from raising the necessary funds without substantially diluting its shareholders. Consequently, Incyte had to compromise on the terms of the offering or those of the licensing deals. 

Earlier this month, Micromet (MITI) concluded an impressive public offering of $75M, approximately 20% of the company’s market cap. The offering illustrates the transformation the company has undergone from an anonymous biotech play into a recognized industry leader. This is also echoed by the growing attention from Wall St. When I first wrote about Micromet in 2007, the company was covered by a single analyst, RBC’s Jason Kantor, who was one of the first to see the potential in Micromet’s platform. Today the stock is covered by six additional research analysts.  

According to the company, its strengthened cash position will provide at least two years of operations, assuming no additional funds are received. Most of the budget will probably be related to Micromet’s lead agent, blinatumomab, which is expected to enter a pivotal trial in Acute Lymphoblastic Leukemia (ALL) in the first half of 2010.

With almost $125M in its coffers, Micromet has just enough money for completing and generating data from the pivotal trial. Nevertheless, some of the money should be put to another use – getting the US rights for blinatumomab back from Medimmune (AZN). As discussed in a previous article, Micromet is trapped in a delicate situation where Medimmune is unwilling to develop the drug, nor is it willing to return the US rights for the drug. Prior to the offering, Micromet could not afford buying back Medimmune’s stake, but now, it can do so without jeopardizing its financial stability. Such a move will be an important value creation event for Micromet, who will finally be able to relicense blinatumomab at terms that are more attractive than those of the original deal with Medimmune. More importantly, such a deal will facilitate the broad global development program this promising drug deserves.

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 into 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

Last month at the ASCO meeting, Curagen (CRGN) presented results for its lead drug, CR-011, in breast cancer and melanoma patients. CR011 had activity in both indications, however, most of the drug’s value should be ascribed to the breast cancer program, which represents a huge commercial opportunity and better chances of approval.

As I previously wrote, the significance of the breast cancer trial is not only in the clinical activity of CR-011, but more importantly, the ability to identify patients who are likely to respond to the drug. By defining the right target population, Curagen could substantially improve chances of approval, shorten development time and enjoy high market acceptance.

This year’s ASCO was packed with promising early stage trials, but very few positive late stage trials with an impact on medical practice. The two most important practice changing trials were phase III studies for Eli Lilly’s (LLY) Alimta and Roche’s (RHHBY.PK) Herceptin. These drugs are likely to enjoy a boost in revenues starting from next year, as both demonstrated impressive survival prolongation in lung and gastric cancer patients, respectively. The studies also underscore the paradigm shift in the industry towards personalized medicine, where a drug is given only to patients who have a high likelihood of deriving benefit. This article will focus on Alimta, which was, in my opinion the winner of ASCO 2009.

A new treatment line

Alimta was evaluated as maintenance therapy in Non small cell lung cancer (NSCLC), the largest oncology market. Maintenance therapy is a new treatment modality in which patients receive additional treatment straight after first line chemotherapy. Traditionally, patients receive first line treatment and are then re-treated with second line therapy only after the disease progresses or recurs. Some hope that slotting an additional treatment even before disease progression could benefit some, if not most patients. The concept of maintenance therapy for NSCLC has already been validated in previous trials, which created a lot of enthusiasm as well as controversy around this strategy.