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Incyte Separates Information Business from Discovery, Adopts Flexible Pricing Structure

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As part of its strategy to ramp up its drug discovery activities, Incyte said last week that it is separating its information products business from its drug discovery group. The company also plans to expand the information available in its LifeSeq and Proteome BioKnowledge Library databases while revising their pricing structure to attract more customers in the academic market and the biotech sector.

The newly autonomous information business will be led by Lee Bendekgey, Incyte’s executive VP and general counsel, who will now bear the title of acting general manager of the information products group. The remainder of the current management team for the information business will remain intact: Ken Jacobsen, executive VP of information sciences; Richard Goold, senior VP and chief genomics scientist; Jim Merryweather, executive VP of business development and commercial operations; and Ward Davidson, VP of business development for information products, will report to Bendekgey.

The creation of the separate business unit will allow Paul Friedman, Incyte’s CEO, and Robert Stein, the company’s president and CSO, to focus their energies on the discovery side of the business, Friedman said. In addition, from a bottom-line standpoint, the “clear accountability” granted to the new business unit should also help the company scrutinize its balance sheet a bit more closely. Friedman broadly hinted that the new model would guide the company in its effort to further reduce spending following a massive restructuring in November in which it laid off 259 employees, around 37 percent of its staff at the time.

“The restructuring that we did last year [reduced] costs that we felt could be taken out immediately without impacting our ability to put an excellent product out the door,” said Friedman during a conference call to discuss the company’s first-quarter 2003 earnings last week. “What we’ve gone to now is a mode where we’ve looked at other expenses that can be taken out, but they’re not ones where you can just turn off the switch and walk out…If we come in at the top of our [projected] revenue range, we, without doing anything further…would be cash-flow positive. If we come in at the lower end of the guidance range, we would have to implement the changes that I’ve been describing in general terms to be cash-flow positive,” he said. Incyte has estimated that it will bring in between $50 million and $70 million in FY 2003, most of it from database subscription sales.

Friedman did not elaborate on what changes may be necessary to bring the information business unit into the black if it doesn’t meet its sales targets — a goal that is presumably within reach. The company posted first-quarter 2003 revenues of only $12.5 million, but Friedman noted that first-quarter sales are historically down compared to later quarters in the calendar year.

Revenues for the quarter were down substantially year-over-year, however, at less than half the $29 million posted in the first quarter of 2002. Attributing this nose-dive in revenues to the lackluster market for genomic information and “reduced budgets in drug discovery organizations and big pharmaceutical companies,” Bendekgey provided a taste of the company’s strategy to make the database business more successful — a plan that he said would “better address the needs of researchers to sift through large volumes of data to prioritize the many potential targets that Incyte and others have discovered over the last decade.” The strategy breaks down to five key points: providing enhanced gene characterization; offering expanded functional annotation of genes and proteins; reaching a broader audience for its database products; licensing its portfolio of patented genes; and growing revenues and managing expenses so that the business operates in a cash-flow positive manner.

While the company declined to provide further details on the gene characterizations or functional information it intends to add to its database offerings, its plan for attracting a broader audience boils down to a lower pricing structure for academic and biotech research groups, a strategy Celera Genomics has also adopted recently [BioInform 02-03-03]. Incyte did not provide details on the new pricing system, but Pamela Murphy, an Incyte spokeswoman, explained that the company would shift to a more “flexible” model. Previously, LifeSeq subscriptions cost $15 million for a three-year license. The new model will give research groups with smaller budgets the option to purchase smaller chunks of the database for shorter amounts of time. “Each company and each research unit would have different needs, and we’re trying to be sensitive to those and price accordingly,” she said.

The company’s plan to add value while lowering its prices may not help it overcome all the challenges facing the genomic data market, according to Alex Hittle, an analyst at AG Edwards who covers Incyte, but the company’s decision to separate its business activities makes good business sense, he noted. In the genomic database business, “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,” Hittle said. If nothing else, he said, “this move focuses the financial accountability squarely on that business, so it will become increasingly clear from an analytical standpoint whether this business is in fact generating cash.”

— BT

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