Incyte Getting Boost from Pfizer

The discontinuation of Incyte Corp’s (INCY - Analyst Report) dexelvucitabine, or DFC (formerly Reverset) in April 2006, the most advanced candidate for HIV/AIDS, was a big setback for the company. DFC had been the company’s key growth driver. However, we are optimistic about Incyte’s other programs.

The company received a major boost recently with the announcement of a collaboration agreement with Pfizer (PFE - Analyst Report) on CCR2 antagonist program. We maintain a Hold rating on Incyte shares.

The most advanced candidate in the CCR2 portfolio is INCB3284, which is an oral CCR2 antagonist for inflammatory disease. Incyte recently initiated a phase II trial with INCB3284 for Type II diabetes in obese insulin-resistant patients. The company expects to deliver top-line results from this trial soon. Another phase II trial on rheumatoid arthritis is currently ongoing, and we also expect to see top-line results from this trial soon.

Besides Type II diabetes and rheumatoid arthritis, INCB3284 may offer potential in multiple sclerosis, atherosclerosis, or chronic pain management. Pfizer will get exclusive worldwide rights to all potential indications other than multiple sclerosis and lupus nephritis for which Incyte will retain exclusive worldwide rights.

At the current share price, we see the risk/reward relatively balanced for investors in Incyte. We were encouraged to hear about the recent agreement with Pfizer and believe this agreement validates Incyte’s development efforts. Based on peer comparisons with other smaller genomic/pure discovery-based biotechnology companies, we believe that INCY shares are fairly valued at current levels. Our $8.50 target price corresponds to a market capitalization of $720 million which we think is fair to Incyte.

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