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The Promise Behind Incyte


Analysts are bullish on a new drug study for a large market.

Biotech investors should have Incyte (INCY) on their radar. Here's why:

The drug discovery company will likely be announcing the results of a mid-stage study for an oral rheumatoid arthritis drug in April and analysts are pretty bullish on its prospects.

The drug program, currently referred to as INCB28050, or just '050, is similar to the later-stage drug '424 that Incyte is developing, which has already shown plenty of promise. While '424 is currently being tested in myelofibrosis, a bone marrow disease, and psoriasis, a condition that is closely related to rheumatoid arthritis, both drugs are Janus kinase (JAK) inhibitors. The JAK inhibitors target one or several of four enzymes that play a role in inflammatory diseases, myeloproliferative disorders, and malignancies.

The data that Incyte will be releasing soon is for a phase 2b study of '050 -- earlier data has been promising, but many investors are still a bit tentative about putting money on the program because of its infancy. They shouldn't be though, because data from a '424 study in RA showed clear positive results for patients over a placebo. Cowen analyst Ziad Bakri told Minyanville that '050 is clearly efficacious.

Eli Lilly
(LLY) certainly thought so -- the company paid $90 million upfront in December for the worldwide rights to '050, and the deal is potentially worth $665 million.

"Many investors are waiting for the results of this study before assigning value to this program. We are confident that '050 will show excellent activity in this indication," wrote Leerink Swann analyst Joshua Schimmer in a recent note.

Yet, correlations with '424 and early data aren't the only reasons to be checking out this program. RA is currently treated by injection with drugs like Abbott's Humira (ABT) and Amgen's Enbrel (AMGN). An oral treatment for the two million plus Americans who are plagued by constant inflammation of the joints and organs would be a huge convenience.

Incyte isn't the only company that realizes the potential of an oral RA treatment; Pfizer (PFE), Celgene (CELG), and Rigel Pharmaceuticals (RIGL) are all developing drugs that would compete with '050. Pfizer's JAK3 inhibitor is the furthest along of the group and has shown to be effective in treating RA; it is currently in late-stage studies.

"Pfizer's compound inhibits JAK3, but also inhibits JAK1 and JAK2. We see this as a close cousin to Incyte's JAK 1/2 inhibitor, and the success to date with [Pfizer's compound] validates JAK inhibition for treating RA," adds Schimmer.

While the new class of drugs is showing plenty of promise, no drug is a sure thing. Bakri points to safety questions that have popped up in the testing of the other oral RA drugs. "These have all been very potent drugs, but now the questions will be about safety," he says. "Physicians generally want to see longer-term safety data and how they stack up against the current treatments. The oral drugs may be safe, but we really need to follow them up for longer to see how they do."

Incyte is currently trading near $13.00. It has fluctuated between a low of $1.96 and a high of $13.25 over the last 52 weeks. The rheumatoid arthritis market is expected to reach $27 billion by 2015. Incyte is currently set to receive 11% to 20% in royalties from Lilly on '050 should it be approved, but the company has the option to bump that percentage up to 20% to 29% should it fund a bit more of the program costs.
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