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Incyte Lays off 400 and Shutters Facilities As it Reverts to Original Database Model

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In a time when most database vendors in the industry are moving away from their data-provider models and adopting a larger discovery role, analysts noted last week that Incyte Genomics’ recent refocus on its information business is most likely an interim strategy until the company firms up its plans to tackle discovery.

As a result of its decision to drop its custom genomics efforts and focus solely on its core database and partnership business, approximately 400 of Incyte’s 1,100 employees will lose their jobs and the company’s facilities in Fremont, Calif., and St. Louis, Mo., will close. Incyte’s activities in custom sequencing, microarrays, public-domain clones, transgenics, and SNP discovery will all be halted.

In a conference call to discuss the company’s third-quarter earnings, Incyte CEO Roy Whitfield noted that revenues from the database and partnership programs increased 13 percent to $45.2 million from $39.8 million for the same quarter in 2000, while third-quarter revenues for custom genomics programs were flat at $12.2 million.

Whitfield accentuated the positives while discussing the restructuring, citing the company’s “success in licensing the LifeSeq database to functional genomic and proteomics platform and tools companies” as a primary factor in its decision to exit the custom genomics tools business. These additional applications for the database beyond its use in drug development convinced Whitfield, at least, of the enduring profitability of the database business.

Industry observers remain doubtful, however. Analysts noted that unless Incyte moves more aggressively into drug discovery and development, it would be difficult to sustain the company on revenues from data and intellectual property alone. Whitfield himself pointed out in the conference call that “almost all pharmaceutical companies subscribe to the LifeSeq database,” raising the obvious question of how much room is left for growth.

 

New Value for LifeSeq Data

 

But Whitfield was sanguine about the opportunities available to the company as it refocuses on the information side of its business. In deals with functional genomic and proteomics platform developers such as Galapagos, Sequenom, and Lexicon, Whitfield said that Incyte has the right to integrate the functional content into its databases and to incorporate the intellectual property into its portfolio in return for a share of downstream revenue.

Additionally, in its partnerships with microarray providers such as Agilent and Motorola, Incyte receives royalties on each microarray sold based on LifeSeq content. Users of these arrays are linked by the Internet back to related content and IP licensing opportunities surrounding the genes being analyzed, providing an additional source of revenue.

“That’s a whole new market, if you will, for databases,” said Whitfield.

Regardless of how promising the future may be for its data and IP, however, dismal future prospects in custom genomics ultimately led to the decision to drop these efforts. Whitfield cited deteriorating market conditions, price erosion, increased competition, and its continuing litigation with Affymetrix as primary drivers for abandoning activities in these areas.

“Increasingly, the custom genomics business was diluting our focus and our resources while contributing significantly to our operating losses,” said Whitfield. “Further, because these businesses are labor- and transaction-intensive, exiting them also offered an opportunity to make other infrastructure and related reductions in force.”

Incyte CFO John Vuko said the company saw a “modest divestiture” from its transgenics business and would close its remaining customs genomics assets. Alameda, Calif.-based Xenogen acquired the company’s St. Louis lab and animal facility, as well as a non-exclusive license to “a package of intellectual property” and an undisclosed number of scientists and technicians. Further details of the cash-based transaction were not immediately available.

At press time it was still unclear what impact the restructuring effort would have on Incyte’s Proteome facility in Beverly, Mass. Proteome confirmed that its CEO, Jim Garrels, had retired.

An Incyte spokesman did not return calls for comment.

In a further setback, the company’s search for a president to replace Randy Scott has run aground. Whitfield said a European candidate had been offered the position, but declined for personal and family reasons related to the events of September 11.

 

Looking Forward

 

Incyte is projecting fourth-quarter revenues of $50 million-55 million, with database and partnership revenues comprising the “vast majority” of the total, according to CFO John Vuko.

Whitfield pointed out the company’s recent antibody-based collaborations with Medarex and Genentech as examples of “the unrecognized value of all the intellectual property that we have outside the LifeSeq agreement.”

The company holds a strong position in therapeutic antibody IP, Whitfield said, because claims on the company’s current portfolio of over 600 full-length genes “cover not only the gene transcripts themselves, but also the proteins encoded by the gene transcripts and the antibodies to these proteins.”

Incyte expects to end up with patents to thousands of proteins. “That’s going to be easily the largest patent portfolio that anybody has in the field,” Whitfield said.

It is expected that Incyte will leverage this IP position to enter more collaborations in which it licenses antibodies, as it did with Genentech, or joint development agreements, such as its collaboration with Medarex, that involve revenue sharing.

But observers remain doubtful that this strategy will guarantee Incyte success in the long term. “Obviously, they have a finite amount of IP,” said Darren Mac, an analyst at Gruntal & Co. “The worry is that the economics that they get at this stage of discovery is extremely small. Is that going to be enough to sustain the company?”

— BT

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