Hervé Hoppenot, the French-born chief executive of Incyte
Hervé Hoppenot, the French-born chief executive of Incyte © FT montage / Alamy

The huge escalator running through the headquarters of Incyte, the US biotech company, harks backs to the building’s former life as a department store. Where smartly dressed shop assistants once sold ladieswear to the residents of Wilmington, Delaware, now there are hundreds of lab-coated scientists trying to discover the next blockbuster drug.

Investors are betting the drugmaker has struck lucky with one of its experimental medicines, Epacadostat, a second-generation cancer immunotherapy that has produced promising results in mid-stage clinical trials.

However, the unexpected rejection of Incyte’s arthritis drug by the US medicines regulator last week was a timely reminder that drug development is anything but smooth. The knock-back wiped more than 10 per cent off Incyte’s shares on Monday.

The biotech group had sold the rights to the medicine to Eli Lilly, but was banking on royalties and other performance-based payments worth billions of dollars to fund trials of its experimental drugs, including Epacadostat.

Now the success of its unproven medicines is even more important than before.

Even accounting for the slide in the company’s shares on Monday, Incyte’s market value has swelled more than 60 per cent over the past 12 months to $26bn, helped in part by persistent rumours that it will be taken over by a larger drugmaker.

“It’s not bad to be sexy — you want to be wanted,” says Hervé Hoppenot, the French-born chief executive of Incyte and previously president of oncology at Novartis. “But we have an obsessive vision of making Incyte a company that will be one of the fastest-growing, most successful, and most profitable — by ourself.”

Asked whether he would consider doing a deal with Gilead, the large-cap biotech group that is often touted as a buyer by analysts, he quips: “We looked at them, but we are not going to buy them — because their growth prospect is very low compared to ours.”

Not all investors agree that Incyte will stay independent. More than 8 per cent of its shares are held by hedge funds, some of which have bought the stock in anticipation of a deal. A manager at one such fund said he thought an approach was more likely following the recent decline in its shares.

While Mr Hoppenot shows little interest in selling the company, he has not been averse to signing research deals with larger pharmaceutical groups. Incyte recently expanded a partnership to test Epacadostat in combination with Merck’s immunotherapy, Keytruda, in a string of late-stage clinical trials. The studies will be done on a broad range of cancers, including lung, kidney, head and neck, and melanoma.

This month, the group agreed a similar tie-up with Bristol-Myers, Merck’s rival in immunotherapy, which raised eyebrows in the industry because the biotech group appeared to be playing the field. Tim Anderson, an analyst at Bernstein, says the deal shows Incyte is a “promiscuous company”.

“People were saying, ‘how do you go to work with one in the morning and the other in the afternoon?’ Well, we offer an open company from a partnership standpoint,” says Mr Hoppenot.

The interest from the likes of Merck and Bristol-Myers comes as the pair try to solve one of the most stubborn riddles of current immunotherapies, which are known as checkpoint inhibitors. Why do roughly a third of patients respond remarkably well to the drugs — living for months or years longer than they would have done previously — while the majority seem to derive no benefit at all?

Drugmakers had hoped to push response rates much higher by combining the medicines with older immunotherapies and more conventional treatments such as chemotherapy. The approach seems to kill more tumour cells in some patients, but for many the toxic side-effects have proven intolerable and forced them to stop the treatment.

Epacadostat, a second-generation immunotherapy, is part of a class of medicines that work by suppressing an enzyme called IDO, which tumours use to hide from the immune system. The drug seems to boost the percentage of patients who respond to existing immunotherapies without causing any major safety problems.

In a mid-stage study of advanced melanoma sufferers, almost 60 per cent of patients on a combination of Incyte’s drug and Merck’s Keytruda went for a year without their cancer getting worse.

The science behind so-called IDO inhibitors can be traced back to research done on pregnancy in the 1990s. Scientists wondered why a mother’s body did not reject a foetus — which derived 50 per cent of its genetic material from the father — in the same way it would spurn another foreign object such as a transplanted organ.

They discovered that production of the IDO enzyme allowed the foetus to shield itself from the immune system. It turns out that tumours use a similar ruse to hide from cells that might otherwise kill them.

Several other drugmakers are developing IDO inhibitors that could rival Epacadostat, such as Bristol-Myers, which recently spent up to $1.25bn to acquire a challenger from San-Francisco biotech Flexus. Roche, the Swiss pharma group, and Merck, have also done licensing deals to gain access to contenders, while Pfizer has an early candidate in development.

Still, Incyte is about 18 months ahead of the nearest competitor, a meaningful head start in drug development.

Incyte generated net income of $104m on revenues of $1.1bn last year, although shareholders ascribe most of the company’s value to future sales and the strength of its pipeline of experimental medicines.

But some investors warn that the rapid appreciation in Incyte’s stock price — and the recent rejection of its arthritis medicine — mean that it must hit a home run with its IDO inhibitor.

In June the company is due to present results from its Epacadostat trials at the annual meeting of the American Society of Clinical Oncology — the world’s biggest cancer conference. Anything less than a clean sweep could spook shareholders, according to some.


IDO inhibitor programmes in human trials

Source: Companies, Bernstein analysis; * technically, Indoximod is not an IDO inhibitor but a tryptophan analogue


“The data we are going to see next month have to be good,” says one large life-sciences investor with a stake in Incyte. “In fact, at this stage, they have to be perfect.”

Mr Hoppenot admits to being a little apprehensive. He argues that while it was scientifically shrewd to start a large number of late-stage clinical trials of Epacadostat, it might be hard for the investment community to work out what the move will mean for the company’s long-term earnings.

“Disappointment is possible because the job of many of the analysts is to do forecasting,” he says. “The problem is that there is a dictatorship of the spreadsheet.”

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