More positive data could see Incyte cash in on its shares


The success of Incyte’s lead candidate INCB1824 in phase IIb trials for psoriasis is another positive boost that will only increase the pressure on management to take advantage of the rise in the company's stock price, to a year high, and do a fundraising that could help refinance the heavily debt laden group.

Yesterday, the group reported that INCB1824 had shown statistically significant results in reducing the symptoms of 200 patients with mild-to-moderate psoriasis, an event that provides further validation of the group’s decision to develop JAK inhibitors. While some analysts are predicting that approval in psoriasis will not be a huge growth driver at the company, the positive sentiment currently washing round Incyte could make investors more inclined to take up the right to buy new shares if the group does decide on a fundraising now.

Familiar route

If Incyte does go down this road it will be following a well trodden one that has seen a host of companies all decide to make money while times are good on the back of shares buoyed by positive data or regulatory news. So far one of the biggest fundraising has been that of Human Genome Sciences, which took the opportunity of unexpected positive data for its lupus drug, Benlysta, to raise $310m after its shares jumped six fold (Human Genome Sciences seizes the moment to raise $310m, July 29, 2009).

More recently obesity drug developers Arena Pharmaceuticals, Vivus and Orexigen Therapeutics all announced fundraising after reporting positive phase III data for their products (Vivus soars on strong data but hurdles remain, Sepetmeber 9, 2009). Vivus last week announced that it would be raising $94.5m, slightly more than the $81.6m raised by Orexigen and Arena’s $50m.

In June, Halzoyme Therapeutics made sure it kept some of the upside from positive phase II results for its type I diabetes drug, Insulin-PH20, by raising $40m after the shares hit a year high in the wake of the trial. Clavis Pharma quickly raised $20m following successful phase II trials for its leukaemia drug elacytarabine while Spectrum Pharmaceuticals used the US approval for expanded use of Zevalin, its drug for untreated follicular non-Hodgkin's Lymphoma, to raise $50m only last week.

Debt overhang

Incyte’s need to raise money is relatively pressing. With a burn rate of roughtly $125m a year and cash reserves of about $144m at the end of the second quarter Incyte is likely to run out of money in the third or fourth quarter of 2010. The group also has the additional headache of its $400m convertible debt due in 2011, something that has been hanging over the shares and preventing them from climbing as much as they should given Incyte’s recent pipeline wins (Event – JAK inhibitor data may help Incyte address financial concerns, August 13, 2009).

At a UBS healthcare conference yesterday Paul Friedman, Incyte's chief executive, admitted that the convertible debt was an issue that the management team were well aware of and were committed to reduce. Mr Friedman said that there were a number of strategies available to the group to reduce and restructure the note and that plans were afoot to do this well before the Februrary 2011 due date.

Alongside a fundraising one of the strategies available is partnering the group’s various assets. Mr Friedman said that the company was planning on retaining the US oncology rights to INCB1824, but was willing to consider a strong rest-of-world partner for the drug in myelofibrosis, to help improve the group’s financial position.

Also up for grabs is a broad global license or alliance for the rest of the JAK-inhibitor programme as well as Incyte’s HSD1 inhibitor for diabetes and pre-clinical oncology products. But while these deals could take several months to come to fruition, with the shares currently riding high the group may take the easy and swift option of cashing in on its own success with an equity offering.

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