Jan 242014


CHASING INCY – INCY Poised to Emerge as Oncology Powerhouse, Raising BUY LIMIT  – The biggest driver of INCY’s value over the last year, and in our view, going forward has been the emergence of their oncology pipeline – driven by impressive data (Jakafi pancreatic) combined with novel JAK-inhibitors for cancer (JAK1) and a new powerhouse in immunotherapy (IDO). Taken together, in our view, INCY’s programs have not only been de-risked but are expected to place the company in the same sentence as other well-known global cancer drug leaders.

Incyte Nabs Novartis Oncology Guru For New CEO As Friedman Retires – INCY has conducted a remarkably smooth “changing of the guard” as they have named Herve Hoppenot, a Novartis Oncology expert as their new CEO to replace Paul Friedman. Given his stellar combination of experience and youth, he is clearly in demand, and in our view, chose INCY because they may have the best oncology pipeline in the world, regardless of company size.  We had the pleasure of meeting the new CEO and five other key members of INCY’s management team at JPMorgan last week.  They clearly have assembled a first class leadership team and that must have also weighed positively on Mr. Hoppenot’s decision to join the company.  The youthful Hoppenot (53) served as the President of Novartis Oncology, from January 2010 to January 2014. Prior to that, he served in other executive positions at Novartis since 2003 as he rapidly ascended the Big Phama ladder. Herve is extremely familiar with Jakafi as Novartis is INCY’s marketing partner in Europe.

Jakafi’s Role in Cancer Inflammation – The JAK/STAT signaling may be of fundamental importance to cancer inflammation as was demonstrated by the strong Phase II RECAP Jakafi data in pancreatic cancer.  The science is showing that systemic inflammation leads to an inflammatory microenvironment causing both tumor cell proliferation and immune evasion.  The emerging data from ruxolitinib in pancreatic cancer combined with their portfolio of JAK1 selective inhibitors will allow INCY to simultaneously explore the therapeutic impact of targeting cancer inflammation across multiple solid tumor types.

The FDA has granted Orphan Status for ruxolitinib for the treatment of pancreatic cancer.  INCY has also reached an agreement on a Special Protocol Assessment (SPA) for a Phase III registration trial in the second-line setting that will be initiated this quarter. Importantly, the FDA agreed that they can limit the study to the subgroup, which showed the greatest benefit in the Phase II RECAP study and that there was no need to develop a companion diagnostic.  This one study may be sufficient to support approval if the results are positive.  However, in order to minimize risk, a second, nearly identical Phase III trial will also be conducted.  Enrollment into these double-blind, placebo-controlled Phase III trials should begin in the first half of this year. Each study is expected to enroll about 300 patients who failed or who were intolerant to first-line therapy and who are part of the subgroup that showed benefit in the RECAP trial. Patients will receive either ruxolitinib or placebo combined with capecitabine and the primary endpoint is overall survival.

Additionally, INCY will start three placebo-controlled Phase II trials to evaluate ruxolitinib in non-small cell lung cancer, colon cancer and breast cancer, all beginning in H1:14 (see Clinical Trials above).  Each study will focus on the subgroup identified in RECAP and will focus on combining ruxolitinib with therapies that have low-to-moderate myelosuppressive effects. Overall survival is the primary endpoint.  The positive Phase II data in pancreatic and the ability to pre-screen cancer patients that are most likely to be impacted by cancer inflammation increases the odds of Jakafi’s clinical success across the solid tumor spectrum.

Jakafi Phase III Data in PV Coming Soon – While Wall Street has been mixed on the polycythemia vera (PV) opportunity, in our view, the data will remind investors why Jakafi could be an important option for PV patients.  The PV market is bigger than Jakafi’s currently myelofibrosis (MF) indication and, with at least 25,000 potential patients in the U.S., represents a real growth opportunity for Jakafi.  Data is coming shortly, in the March/April timeframe.   Positive data would allow INCY to submit the sNDA for the treatment of PV in June.  With FDA Fast Track status in hand, a six month review would potentially lead to an approval and label expansion by year end, hopefully in time for the ASH conference.

Additional Visibility on INCB39110 Development Plan is Key Piece of JAK Oncology Pie.  ‘110 is currently in Phase I in front line pancreatic cancer (with gem/Abraxane) and in B-cell malignancies, following the release of the promising Phase II data in MF at ASH.  A broad Phase II development for ‘110 has already began to emerge in 2014 with this being the JAK inhibitor that has shown the best tolerability when combined with myleosuppressive drugs including chemotherapies.  This should be the last piece for INCY’s ever broadening JAK portfolio in both liquid and solid tumors.  INCY will start two placebo-controlled Phase II studies of ‘110 in distinct chemotherapeutic regimens in patients with non-small cell lung cancer, focusing again on the RECAP identified subgroup.  It is also important to remember that ‘110 is a wholly-owned asset, which in our view, has yet to be valued by Wall Street.

IDO inhibitor INCB24360 Combo Data with Yervoy Coming at ASCO, Plus Phase II Research Collaboration Trials – In December, we reviewed the science behind IDO, INCY’s future blockbuster.  From what we understand, the open-label trial testing ‘360 with Yervoy is showing that patients given the combination are doing substantially better than historical Yervoy monotherapy (Clinicaltrials.gov – Incyte).  A number of IDO combination trials will be initiated this year and the company is already having meaningful discussions with potential partners for additional combination studies.  These will not be traditional partnerships, in which one gives away rights for cash today.  Rather these will for the most part be one-off trials to explore the potential with other checkpoint inhibitors.  The combination trials are very important for this novel class of drug candidates as the evolving theory behind cancer immune therapy is you need to inhibit to least two different pathways, maybe even three, to have a measurable treatment affect.  In our view, ‘360’s unique mechanism of action and small molecule profile are very attractive attributes and differentiate this exciting drug candidate from other oncology checkpoint inhibitors.  ‘360 has also exhibited a better safety profile than Yervoy, which would make it one of the better choices for combo trials.  Supporting this theory is the fact that BMS recently reduced the dose in a combo trial of Yervoy/PD-1 because of toxicity. IDO is one of the true crown jewels at INCY, just beginning to be noticed by investors. Still, we believe that long-term value from this compound has yet to be discounted into INCY’s valuation.

Incyte’s Newest Oncology Asset, a PI3K-delta inhibitor, INCB40093 for B-cell Lymphomas –  INCY’s PI3K-delta inhibitor ‘093 is already in the first part of a Phase I dose escalation trial in patients with B-lymphoid malignancies (Clinicaltrials.gov – INCB40093).  Later this month, the company will initiate a Phase I safety and efficacy combo trial testing ‘093 in combination with their oral JAK1 inhibitor ‘110 in this same patient group.  With an ever burgeoning oncology pipeline, one of INCY’s goals is to leverage the diversity of their portfolio by exploring other novel, cross-portfolio combinations. The breadthy and diversity of the company’s portfolio provides compelling opportunities to identify and develop unique targeted combination therapies in tumors for which there is an unmet clinical need.  Interestingly, pre-clinical studies have demonstrated that the JAK1 and PI3K-delta pathways play interrelated functions in maintaining the growth and survival of B-lymphoid itself. And concurrent inhibition of the two pathways exhibit synergy in preclinical studies.

AutoImmune, A Free De-Risked WildCard, Phase III RA data for Bari – LLY controls INCY’s second JAK1/JAK2 inhibitor (see Clinical Trials above), baricitinib, which is currently being evaluated in pivotal trials in rheumatoid arthritis, as well as in Phase II trials in psoriasis and diabetic nephropathy.  The first readout of multiple trials in the bari RA Phase III program is expected this year with data presentation to come in 2015. The ideal RA drug would be administered orally once-a-day, have efficacy at least equivalent to the injectable anti-TNF inhibitors (e.g., Enbrel, Rituxan, Humira with combined sales of over $20 billion) and not have the dose limited by off-target toxicities.  In our view, based on the Phase II data, bari could very well be that drug.  The initial market opportunity for bari will be substantial as a third of RA patients do not respond to injectable TNF therapy. Wall Street has assigned little value to bari, notably as PFE’s inferior JAK inhibitor Xeljanz has yet to make a meaningful dent in the anti-TNF drug domination. leaving the opportunity for positive data to serve as a significant catalyst.  Lastly, INCY opted to co-fund the Phase III program in RA with Lilly making the company eligible for tiered royalties up to the high-20% range, demonstrating their underlying confidence in bari’s ultimate success.

Investment Conclusion – Chase INCY – INCY is poised to enter the top tier of biotechs with an existing drug, Jakafi, heading to blockbuster status, and a rapidly emerging small molecule oncology pipeline that, in our view, is second to none in the world. By year end 2014, INCY will have 9 different drugs or drug candidates in human clinical development for 26 different indications.   An amazing 21 of the different indications are in cancer.  It is clear to us that an oncology powerhouse will emerge this year at INCY as they have strategically positioned the company for multiple datapoints, clinical initiations and rapidly growing revenues throughout 2014.  With the youthful and dynamic new CEO from Novartis firmly taking the reins of this throughbred oncology powerhouse, in our view, INCY is ready to run further in 2014.

“Paul is not Dead” is a mantra from the 60’s that Beatles fans will never forget.  We will miss and also never forget Paul Friedman for his contributions to small molecule drug development.  Plain and simple, Paul is the most honest CEO I have ever meet.  He took a struggling, rudderless genomics company and turned it into a small molecule oncology powerhouse that has arguably the broadest and deepest small molecule cancer pipeline in the industry.  His legacy is already impressive – Sustiva for HIV and the subsequent buyout of DuPont for $7.8 billion in 2000 (valued was at $800 million when Paul joined in 1994) and the tremendous success of INCY which is now valued at over $10 billion.  In our view, ten years down “the long and winding road” Paul Freidman may very well remembered as one of the most prolific drug developers in history.  While Paul’s legacy already has the potential to be historic, our reference to “Paul is not dead,” is that we expect that he will add once more to his drug development legacy before his days are done.

ISIS – THE NEW HYDRA – Three “Alphabet” Drivers of Value – SMA, APOCIII, TTR & Cancer Surprises in Store For 2014 Raising BUY LIMIT.  What may sound like a bad commercial for Alphabet Soup, SMA APO & TTR make up a part of what we believe is one of the industry’s most underappreciated, mid-to-late stage pipelines in biotech. With more than 30 compounds in clinical development by ISIS and its corporate partners, ISIS is poised in 2014 to make the most progress that antisense development has seen over the 20+ year history of the technology.

SMA Up First & Represents An Undervalued Asset – SMA data is up first with Phase I/II data in both infants and children due this quarter.  Importantly, early data from this program was released last year and has been validated subsequently by BIIB, that formed an excellent partnership providing royalties starting in the double digits and escalates into the high teens range.

INCY slide

SMA represents a significant opportunity, with 30,000-35,000 patients suffering from this condition in the US, EU and Japan. This is a life threatening and unmet medical need affecting mostly kids as young as six months.  A substantial market opportunity exists that could be more than $1 billion depending on premium pricing variables.  While some analysts are assigning 50% probability of success, in our view, it is closer to 75%.  Phase II/III development in infants is slated to start in the H1:14 and Phase II/III for children will start in H2:14.  BIIB has an option for the SMN program after the first Phase II/III trial is completed.

APOCIII Will Start Phase III & Partnership in 2014 – Two Phase III trials will start in 2014 – one by mid-year for the FSC indication and the other in patients with severely high triglycerides (TGs) in the H2:14.  These are substantial market opportunities of 3,000-5,000 patients worldwide for FSC and with >50,000 for severe TGs in the US/EU.   The company could easily surprise with a substantial partnership for APOCIII in the huge long term chronic cardiovascular conditions that will require heavy lifting to obtain FDA approval, ie, long term outcomes trials (e.g., needing 10,000-20,000 patients) that take years to run and cost hundreds of millions.

ISIS-TTR Large Orphan Opportunity – ISIS-TTR was designed to treat Transthyretin (TTR) Amyloidosis, a rare genetic disease that results in progressive neurodegeneration and death. A total of 50,000 patients are affected worldwide, with 10,000 of Familial Amyloid Polyneuropathy (FAP) patients and 40,000 with Familial Amyloid Cardiomyopathy (FAP).  TTR is currently in a Phase III trial with partner GSK in 200 FAP patients that began enrollment in March of last year.  TTR is partnered with GSK and Phase III data is expected in 2017 with a potential filing in 2018.

Oncology – Focus on OGXI’s SYNERGY Trial, Plus ISIS-STAT3 A Huge Sleeper – And as discussed below under OGXI, the Phase III Synergy readout for custirsen in prostate cancer has been moved up to a mid-2014 event from year end.  ISIS is eligible to receive 30% of the milestones (up to $370 million) and up to a 7% royalty from OGXI.    STAT3 is a potent and selective inhibitor of STAT3, a novel target associated with both JAK and SRC kinases.  And similar to JAKs, activation of the STAT3 pathway is implicated in creating a favorable microenvironment for tumor growth.  STAT3 is partnered with AstraZeneca and is currently in a Phase II trial in 25 patients with DLBCL and other lymphomas.  Additionally, a Phase Ib/IIa trial in patients with advanced metastatic hepatocellular carcinoma (HCC) is ongoing.  STAT3 has the potential for an early launch in 2017 with a high-response scenario (>50% response) after Phase III is complete.  A mid-level response scenario in Phase II (30-50% response) would move the launch out to 2018.  We may not see any new data until ASH as AZ controls the program, however, the wait could be worth it as STAT3 is an exciting new cancer target.

Investment Conclusion – 2013 Momentum Accelerating into 2014 – ISIS is poised to continue 2013’s excellent performance as the company remains catalyst rich, and in our view, undervalued by Wall Street. Many years ago a prominent Wall Street analyst wrote a report titled the “Hydra” to describe Chiron as they exhibited a broad portfolio of drug/vaccine/diagnostic candidates that diversified risk and provided more sustainability. The Hydra had the body of a serpent and many heads. In our view, with 31 drug candidates in development, ISIS is the new “Hydra on Steroids” as the company has the broadest/deepest pipeline in biotech.  ALNY is equally valued with an impressive but much thinner R&D pipeline. In addition, as its has cross-licensed ISIS’ rich antisense patents, ALNY pays ISIS a portion of most deals they do and also owes ISIS royalties. For example, ISIS received $7.5 million in cash from the ALNY/SNY deal above, and has received more than $50 million from ALNY to date. We know we are mixing Egyptian mythology with Greek, but who could resist combining ISIS with the Hydra.


Relevant New Studies or Changes Posted on Clinicaltrials.gov for our MTSL Portfolio and/or Related Companies since last Issue:

ALNY – A Phase 1 Study of an Investigational Drug, ALN-AT3SC, in Healthy Volunteers and Hemophilia A or B Patients (Clinicaltrials.gov – Alnylam)

BMRN – A Phase 2, 2-Stage, 2-Cohort Study of BMN 673 Administered to Germline BRCA Mutation Subjects With Locally Advanced and/or Metastatic Breast Cancer (Clinicaltrials.gov – BioMarin)

BMY – An Open-Label, Randomized, Phase 3 Trial of Nivolumab Versus Investigator’s Choice Chemotherapy as First-Line Therapy for Stage IV or Recurrent PD-L1+ Non-Small Cell Lung Cancer (CheckMate 026) – (Clinicaltrials.gov – Bristol-Myers)

CELG – Abraxane and Gemcitabine Versus Gemcitabine Alone in Locally Advanced Unresectable Pancreatic Cancer (Clinicaltrials.gov – Celgene)

CELG – 3-part Study to Evaluate Safety, Tolerability, Pharmacokinetics & Pharmacodynamics of Multiple Doses of CC-220 and Relative Bioavailability of a Formulated CC-220 Capsule (Clinicaltrials.gov – Celgene)

INCY – INCB024360 Before Surgery in Treating Patients With Newly Diagnosed Stage III-IV Epithelial Ovarian, Fallopian Tube, or Primary Peritoneal Cancer (Clinicaltrials.gov – Incyte)

INCY – Ruxolitinib Efficacy and Safety in Patients With HU Resistant or Intolerant Polycythemia Vera vs Best Available Therapy. (RESPONSE 2) – (Clinicaltrials.gov – Incyte)

INCY – Ruxolitinib W/ Preop Chemo For Triple Negative Inflammatory Brca (Clinicaltrials.gov – Incyte)

MRK – A Study of MK-3475 (SCH900475) in Combination With Chemotherapy or Immunotherapy in Participants With Lung Cancer (Clinicaltrials.gov – Merck)


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