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
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 ~$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 ~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. Lastly, 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.
