By Adrienne J. Burke
In GT’s first issue nearly three years ago, an article called “Why Incyte Loves Linux,” reported on the state-of-the art bioinformatics capabilities of Palo Alto-based Incyte Genomics. At the time, the company and its VP for bioinformatics R&D, Steve Lincoln, were known for having built a high-performance computational genomics platform that enabled Incyte to accumulate the largest gene patent estate in the industry.
Today, Lincoln is long gone and Incyte has shed the “Genomics” half of its name — along with its microarray business and several hundred jobs. Its main products remain the LifeSeq genomic database and its Proteome Bioknowledge Library, but new subscribers are hard to come by, and revenues for the recent quarter were half what they were a year ago. CEO Paul Friedman, who runs the company from its Newark, Del., outpost, says, “Now we’re in a different era.”
In late 2001, as genomics tools and data providers everywhere floundered, Incyte’s board recruited Friedman and President/CSO Robert Stein from DuPont Pharmaceuticals. It charged them with turning the company — which had been able to stash away $500 million during the old genomics era — from data provider to drug company.
In May, Friedman handed oversight of the database business to General Counsel Lee Bendekgey, who says he plans over the next three years to roll out enhanced products that will appeal to a broader user community. Meanwhile, the top execs are focused on a pharma strategy.
GT met with Friedman in Delaware at the DuPont Stine Haskell research facility, where Incyte rents office space, to find out what advantages there are to building a pharmaceutical company on a genomic data foundation.
GT: Would you talk about the decisions you made when you took over management of Incyte a year and a half ago? You’ve completely reinvented the company, changed its name and mission, revamped the staff and the management, laid off several hundred people, acquired a small pharma with drug leads, and established a drug discovery outpost across the continent. Did you have immediate clarity about going in this direction, or was it a drawn out decision-making process?
Paul Friedman: Here’s what happened in the beginning: The board of directors decided that Incyte would not thrive as a tool company and they looked around for senior management who could do drug discovery.
Bob Stein and I had decided to leave DuPont Pharmaceuticals when it was acquired by Bristol-Myers Squibb, and a number of people who had the option as we did to remain with Bristol-Myers asked us to look around for something we could do together. Even though DuPont was a moderate-size pharmaceutical company, we ran it with a biotech entrepreneurial esprit and we had a lot of cross-fertilization. We weren’t vertical or in silos and people really liked it. So when DuPont took the $7.8 billion and ran with it, many people didn’t want to go with BMS because it’s big and vertical.
We looked at some startup situations and I’m very glad we didn’t do that. We looked at companies that had an ongoing activity that had decided to go downstream and frankly had money in the bank. The one we found most interesting, even though it didn’t have the largest amount of cash in the bank but had a substantial amount — $500 million — was Incyte, because it had this huge genomic database, it had the largest intellectual property portfolio of any of these companies and it still does. We saw the possibility for proprietary targets there and we liked them the best, they liked us the best.
We said, look, we can set this thing up on the West Coast and it will take two to three years to build it up to where anything at all is happening. On the other hand, all these people are looking for a place to land and it just doesn’t make sense not to take advantage of that. Biologists are hard to find and really good medicinal chemists are scarce as hen’s teeth, so you really take advantage of that if you can find it.
So we now have here 135 people equally divided who are as good as anyone in the industry. We hit the ground running. The geographical disparity we have to deal with is worth it for the positive aspects of being able to get up and running as quickly as we did.
So 135 people just followed you out DuPont’s door?
Probably 80 to 85 percent of our people are from DuPont. We got about 35 right off the bat. Then we got dribs and drabs throughout the first year, and then BMS closed down the site and we got the next influx of people. In a little less than a year we had grown to this number and we’re going to plateau here for a while before we ramp up and recruit anybody else.
We’ve made remarkable progress in 11 months. We didn’t even have labs till April of last year. And now we’re pretty close to nominating a compound for clinical development, which is almost impossible. The lead program has the potential to treat a variety of chronic inflammatory diseases like rheumatoid arthritis and inflammatory bowel diseases like Crohn’s disease.
We did take advantage of genomics in selecting that target. Although it came from multiple publications, the CCR2 knockout is viable and shows no bad phenotype but is protected in disease models in chronic inflammatory disease, so it’s an example of how one uses the tools of genomics to hone in on a target.
Now that you’re doing drug discovery, is the use you’re making of the Incyte LifeSeq Foundation database legitimizing the money that Incyte was charging all those years to subscribers, or is the use you’re making of it actually indicating that it might not be as valuable as it was once thought to be?
I wouldn’t want to put a dollar figure on it. It’s incredibly valuable, but what was paid was what the market would bear at that time.
It’s an incredibly valuable set of data and the question is how to reduce it to practice in the most efficient way. There is a lot of data. It almost becomes overwhelming if you don’t figure out how to deal with it, and that’s one of the reasons there’s been a feeling that it hasn’t yielded as quickly what people anticipated it would.
I don’t think anybody who thinks about it doesn’t believe this is a hugely invaluable set of data.
It’s been said that in the genomic database business these days, “the cost of keeping the data fresh enough to attract new customers and retain existing ones tends to consume all the money you bring through the door.” What’s your view on that assessment?
[Selling genomic information] can be a viable business, but in the race to clone all of the genes and sequence the genome, people weren’t as concerned about cost control as they were with getting there first. They assumed that at the end of that phase of genomics — obviously a critical phase — products could be structured in a cost effective way. We are in the midst of doing that and we’ve taken out a lot of costs and are putting a better product out the door. It’s definitely doable, there just wasn’t enough attention paid in the first phase to how you were going to do it in the second phase and be able to make money with the products that you created from the sequence.
In the first six to nine months that Bob Stein and I joined Incyte we wanted to see what it was we were licensing away before we just Pollyanna licensed everything we had. Now we’ve been able to see what we think is safe to license vis-a-vis our internal efforts and what would have hurt us had we continued to license things without considering the pluses and minuses.
We’re more aggressive now than we were. The atmosphere in big pharma in particular is more challenging because people have used more of their money internally for R&D for development, later stage compounds, and they’ve backed off on early stage targets, but that has to come around again or you can’t sustain your pipeline.
Are pharma companies reluctant to buy data from Incyte now that it is a potential competitor?
That comes up pretty much every time we talk to somebody. When you consider the number of targets that we could possibly have at any one time, it’s a small number compared to the number of programs a big pharma has going at any one time. So we are, in that regard, not significantly competitive with the companies that have taken the database. Although we have a fair amount of money in the bank, we don’t have enough money to carry out multiple development programs all the way to registration without partnering programs. So if we are successful, especially with more expensive development programs, it’s virtually certain that we’ll look to one of these companies to partner.
It’s more challenging to sell this stuff now than it was when it came out, and everybody thought if they didn’t jump on the bandwagon that they were going to miss out. Now they’ve had a first pass at the data and with the economy and the fact that they’re concentrating on compounds in later stage development in the pipeline there has been a plateauing in interest, but I don’t think that that’s the way it will play out in the long term because these databases are incredibly valuable.
Having said that, we’ve had to [establish] more aggressive pricing strategies to interest new customers and to retain current subscribers. We’ve coupled that with markedly increasing the pharmaceutical relevance of the database — those of us who have had pharmaceutical experience got to look at it and see where it wasn’t very user-friendly and what you could do in the process of modifying the databases in very positive ways to make them more pharmaceutically relevant and user-friendly — and that will be released toward the end of first quarter.
We’re continuing to look at ways we can take more costs out before putting the products out the door. I wouldn’t say we’re bullish, but we’re pretty optimistic that this is a viable business and it just required some evolution.
In your descriptions of your drug discovery programs in recent presentations, I didn’t hear you use any of the buzzwords like pharmacogenomics, personalized medicine, genomics-based medicine, or proteomics. Would you describe your drug discovery efforts as traditional or genomic-based or something else?
Genomics and proteomics data do have quite a bit to do with our current discovery work. They are being utilized for a number of our pilot activities and for our efforts to validate targets. They are not central to the current lead programs that we have because once they become lead programs you have the usual blood, sweat, and tears that are required to find a compound and optimize it.
How you would design your clinical trials, whether you’d use pharmacogenomics or personalized medicine approaches to design your trials, is a different story and we may come back around to using those as we get into the clinic.
I don’t have a problem with those words. I think they’re important. I think that they are applicable in certain spheres of medicine currently and they’re not in other spheres. They are evolving disciplines that will become more and more important and relevant to more therapy areas.
Would you say that there’s a bigger emphasis on those technologies at Incyte than there was at DuPont, or would you say you’re following the same approach you did at DuPont? In fact, did you do a lot of genomics-based drug discovery at DuPont?
No, we didn’t. We did classical drug discovery. And in our lead programs [here], that is what we’re doing. But we have a fair number of very, very early activities where genomics and proteomics have the potential to be more relevant in helping us [bring forward] some novel targets.
Pharmacogenomics and personalized medicine, per se, are terms that become more relevant in clinical development and not where we are with these programs. It’s very possible that those disciplines will become quite important to us when we get [around] to making clinical decisions about these early discovery activities, so it’s premature for us to be using those terms except for hypothetically.
Post-reorganization, what do you now consider to be Incyte’s greatest strength?
Our greatest strength is our people. We have culled down the folks in Palo Alto, and they’re excellent. But for where we are going and where we think we’re going to create shareholder value, which is drug discovery, the people we have here are in the top five to 10 percent of all discovery people in the pharmaceutical industry. It doesn’t matter what your business model is, it doesn’t matter what your plans are, if you don’t have good people then you can’t execute. I really think that’s our greatest strength.
On the flip side, what is the one thing that you consider to be your biggest challenge — the thing that keeps you awake at night, if you will?
It’s hard to pick one, but if I had to, it’s dealing, as good as these people are, with the ultimate serendipity of the drug development process, which is hard to get around.
When you’re small you have to be creative — financially creative and creative in other ways because you have limited headcount and limited resources. It’s about figuring out how to have as many balls in the air as you can have and still be competitive so that you get something across the finish line. We’re pretty good at that, but we certainly don’t have the size organization or the budget that we had at DuPont Pharmaceuticals. We don’t have 15 or 20 programs so we have to be very selective about what we pick and we have to be creative so we can maximize the number of programs we can run within the budget.
Even though we have almost $400 million, you don’t know when the capital markets are going to open up again, you want to be successful, you want to be successful internally, you want to be able to license in compounds that get you into the clinic. We’re trying to keep the balls in the air and stay within the financial constraints under which we operate. It’s not a good time to run out of money, so we have to be very cognizant of that, but at the same time I think we are extremely fortunate to have the amount of money we have in the bank.