Incyte Has Bad Data and Worse Timing

Not every drug can be approved for every disease, but try telling the market.

In this biotech market, good news is met with a shrug, and bad news with pitchforks, torches, and cries for blood. 

Not So Solid

Incyte shares plunged on the news it was stopping solid tumor trials for its key drug.

Source: Bloomberg

Incyte, for example, reported solid quarterly earnings on Thursday, easily passing analyst estimates. But it wiped that completely from investors' minds by halting several trials testing its top drug Jakafi in solid-tumor cancers, saying the data couldn't justify moving forward. 

That takes an important part of the company's growth story off the table -- and serves as a reminder that there are limits to biotech's attempts to infinitely expand the reach of its blockbusters.

The news was arguably foreseeable; the company halted a Jakafi trial in colorectal cancer in late January. But it comes at a time when the market has no tolerance for anything worrisome. Incyte shares fell as much as 20 percent on Thursday, on top of a 30 percent drop since the start of 2016.  

Jakafi is a kinase inhibitor approved for a bone marrow disorder and a type of blood cancer, and it's doing pretty well already. It booked $182 million in sales in the fourth quarter, beating expectations and up 72 percent since the same period a year earlier. The company expects $815 million in sales in 2016. 


Investors will have to content themselves with good, but less spectacular growth prospects for Jakafi after Incyte halted solid tumor trials.

Still, Incyte was hoping it could grow sales beyond blood cancer, and for years into the future, through approvals in treating solid tumors. It's part of a strategy that has become common in biotech, in which an initial approval of a drug is only the beginning. Companies increasingly refer to a "pipeline in a drug" to describe the practice of testing their most popular drugs in many treatment areas. 

AbbVie's Humira inflammation drug, for example, has added new indications year after year in its march to becoming one of the best-selling drugs in history.

Companies making drugs that use the human immune system to fight cancer are running dozens of trials in different types of tumors and in combination with many other drugs as they try to expand sales. Such "label expansion" is a core part of AbbVie's strategy with its blockbuster Imbruvica, a different kind of kinase inhibitor effective in blood cancers. AbbVie also hopes it will be approved for solid tumors. 

Biotech companies and investors have dreams of hockey-stick sales growth for drugs, driven by future approvals for new uses. And studies of new treatments for approved drugs can seem less risky than studies of unapproved drugs deeper in the pipeline. If a drug works well enough in at least one area to get approved, then there's less worry about unforeseen safety issues.

All of that is true to a certain extent, but with limits. The risk of overconfidence is high. 

There's an argument, espoused by analysts Geoff Meacham at Barclays and Cory Kasimov at JPMorgan, that the market has overreacted by shaving $3 billion from Incyte's market cap in one day.  Incyte still plans to test drugs similar to Jakafi on a variety of other diseases. The company has an arthritis drug, recently submitted by partner Eli Lilly to the FDA, with the potential to sell at least as well as Jakafi. Incyte also has a promising cancer drug being studied in combination with immune therapies, and a variety of other pipeline bets. It's possible all have been unfairly devalued by today's news.

But there's now extra pressure on Incyte to deliver on those drugs. It must avoid giving the market another reason to freak out and reassure investors there's not something wrong with its research machine.

Incyte may have over-hyped Jakafi's potential, and the market may have been too eager to believe it. But reality checks are unusually costly these days.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Max Nisen in New York at

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    Mark Gongloff at

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