Message Font: Serif | Sans-Serif
 
No. of Recommendations: 7
Here are notes from recent conference call, unedited.

Roy Whitfield
Delighted with year, exceeded most goals.
Leveraging its information

4th quarter for execution
Online database deals with Sankyo/Sumitomo

2 key initiatives.
- Direct sales and marketing group from 10 to 100 plus in last 18 months ago
- Successful development of internet offering
Continue expansion beyond pharmaceuticals
Accelerated adoption of db and custom genomics
Underlying profitability of top line provides growing operating leverage provides bottom line opportunities.

Agilent and Corning licensed in order to place Incyte's data on their microarrays. Future royalties on microarrays.
Long-term growth, draw all medical researchers to their website. Users draw info on genes of interest from Incyte and buy clones and reagents. Click thru mechanisms.

Incyte investment spending in prior years will reward investors for time to come. Led to groundbreaking deals.

Expression and genetics research scientists have accelerated their discovery programs in oncology, diabetes, and inflammation. Expression groups have found potential disease markers for various diseases. Colon, breast, and lung cancer. Recently received notices of allowance of patents on three of these.

Nature new genetic causes for Type II diabetes, severe insulin resistance, and hypertension have been identified.

100,000 SNPs patents diabetes, osteoarthritis, and drug metabolism.
SNPS or in the genes and likely to code for gene structure and protein sequence. Molecular causes of disease and Individual responses to medication.

Capitalized on this preeminent position in SNPs. Sequenom will use Incyte SNP for tests for markers. 100,000 SNP assays validated SNP assays for medical utility.
15,000 samples carefully selected to represent the general population
Allele frequencies in 4 distinct ethnic groups. Validation for medical utility. Jointly commercialize the resulting IP in downstream diagnostic and therapeutic opportunities.

Oxigene. Discover novel targets for osteoporosis. P Candidate genes for bone mineral density, fracture.
Incyte expects this will provide a valuable source for validated source of drug candidates.

Lastly, Incyte and Academic jointly study a particular area, often using carefully cataloged tissue samples. Incyte holding exclusive licensing rights.

Examples:
Baylor University Juvenile oncology
Roy Castle lung cancer
Huntsman Institute colon cancer
University Masstricht cardiovascular disease
USF prostate cancer

These deals represent extremely cost-effective mechanism to harness these institutions in Incyte's drug discovery efforts.

Combining Incyte scientists, academic collaborators, and Seq/Oxigene, there are currently over 1000 scientists working on Incyte proprietary projects.
On antibodies, full-length genes, drug targets, therapeutic proteins and vaccines, disease pathways, etc.

These projects provide value over and above their current database and custom genomics services.

Goals
Key goal is to provide visibility of value created by this investment spending.

Provide a President who has drug discovery and development experience.

Potential objective. Partnership with a pharmaceutical company on drug discovery, possibly antibody company. Note: This is NOT a crucial objective for meeting Incyte's development efforts.

Announcement of a drug entering clinical trials is potential announcement.

Over 30,000 licenses by virtue of commencing clinical development.

Example of potential: Astra-Zeneca, over 50% of targets entering pre-clinical phase are based on Incyte information (as noted in Wall Street Journal).

Summary: 2000 outstanding year
Sales and marketing expansion and internet was key.
Top line growth, and through operating leverage, bottom line growth in database and custom genomic services.
Drug discovery provides further opportunities.

=====
CFO?
Revenues 20% 55.4 million 194 million 24% increase. Net loss 7.4 million, annual loss 29 million.
3.1 million gain from repurchasing 15 million of convertible notes.
Custom genomics 52% over prior year.
Annual R&D 192 million, reflecting IP, database, therapeutic drug discovery programs.
Guidance…
220 to 240 million quarterly revenues, increase about same rate.
58 to 58 million profit excluding investment spending
60 million in investment spending programs
12 million goodwill
43 amortization
57% of losses in 1st 2 quarters of the year
$520 to $540 million cash at end of year.

=============
Lee B: Intellectual Property (IP) Issues
377 full-length genes issued patents at beginning of year
560 full-length genes issued at end of year

All activity occurred when PTO was supposedly raising the bar to make it more difficult…
Recent guidelines continue to affirm genes are patentable subject matter, same as any other invention
What will be the affect of new guidelines?
No affect on previously issued genes. Have been operating under them under most of the year.

Incyte has been spending tremendous resources on IP with goal of generating business, not litigation.
The market has validated Incyte's gene patent portfolio.
Entire pharmaceutical industry

Corning, Agilent, NEN, Motorola, Sequenom give royalty, establish Incyte as standard reference tools.

Gene patents only one component of their intellectual property
Results of past investments
Databases (DB), protein database, genomic info, architecture interfaces are some of the non-gene patents. Examples include:
DB employing, storing, and displaying protein function hierarchies,
DB storing, displaying gene locus info
DB determining genomic info, and project base full-length biomolecular sequence information.

Several pending patents in software and algorithm areas.
People forget Incyte virtually invented the genomic database business…they have patents on key elements that would be required by virtually any database of genomic information.

Licenses AHP, Chiron, Gene Logic to use patented RNA amplification technology.
GLGC protein functional hierarchy patents.

Litigation pleased with recent AFFX claims decision. Judge limited claims to no more than 100 bases long. Construing AFFX patents to apply only to the use of light or another energy source to activate localized regions on an array to remove protected groups.

This gives them confidence that can overturn allegations of infringement without a trial.

Especially pleased with judge's interpretation of AFFX 2 color patent claims. These claims were copied from Incyte's patent application. AFFX claimed at the time they filed lawsuit that they would shut down Incyte's expression business.

Incyte says judge ruled labeling cDNA does not infringe the claims copied by AFFX from Incyte's patent.

Although they didn't make the point in their earlier press release announcing the Markham decisions, they note that the Judge said he was inclined to invalidate Claim 1. This is the claim that AFFX said in their press release that was supposedly interpreted to broadly cover the detection of nucleic acids on arrays using labels.

Filed numerous patents on full length and partial genes covering colon cancer, breast cancer.

Received a Notice of Allowance on genes regulating cell proliferation.

Filed on over 100,000 SNPs and genes relating to Type II diabetes, ostearthritis, drug metabolism.

Maintain its leadership db, target validation.

=======
Questions
Sense of revenue blend for coming year?
Custom genomics growth rate continue? Look for custom genomics to outpace database revenues.

Cash flow Guidance.

Spend another $40 to 45 million on capex? Where's the other $50 million going to.
Equity investments, not “significant”. Also potential buy back of convertible notes…consider this a fairly attractive investment.

What is plan on legal side? Timeline
Still being worked out. Precise legal strategy under consideration. Summary judgment is under consideration for most if not all claims. Don't know of timeline. Extremely unlikely any sooner than towards end of the year.

Metrics to measure internet business?
Not directly. Internet driving force behind custom genomics revenue.
Sankyo and Sumitomo deals big. Cost to put behind firewall in comparison. Quite hopeful of a number of new transactions.

Increase on internal drug development programs. How do you keep this apart from other stuff?

Simple. Clause in their LifeSeq agreements called Incyte proprietary programs. If Incyte does any work on it…if they use if for their own purposes, not part of licensing rights in LifeSeq.

Incyte signed more database deals last year than in any previous year; Is there something weird in Q4 1999 that makes it unfavorable comparison?

Look at newer subscribers, like biotech, their upfront prices are less than big pharma.

Microarray business, custom genomics.

Internet deals still have sales people. Internet is for distribution.

Could see a drug go into clinic?
Is it likely pharma or biotech would formally announce it?

No obligation on part of pharma to announce clinical trial. However, when they put a drug into the clinic, a milestone is due. Some of their clients are pretty open about it (drugs entering trials). From more than 1 partner it's their expectation that it would happen this year.

Antibody company?
Diabetes deal going on for some time. Pharmaceutical companies looking at it for a long time. It's not can we do a deal, but what can we get for it and what about downstream deal. It would be nice to do a deal, but it's not a scientific or financial requirement to meet Incyte's objectives this year.

There are so many targets…

What funds to exclude from spending numbers to arrive at profitability numbers in the database and custom genomics services divisions? How separate expenses out?

Incyte prefers phrase “appropriately allocate” rather than exclude.

Sequenom deal for instance has nothing to do with custom genomics or databases.

Osteoporosis deal with Oxigen has nothing to do with databases and custom genomics deals.

Will give no guidance with R&D and S&G numbers.

In investment spending, is there an allocation to R. Scott venture?

There is no formal business relationship other than small investment

Question on name change and drug discovery venture business vision.
We invented genomics business. Got advice not to change their name previously.

They've had a diabetes program for 5 years. Targeting and academic collaborations are a few years old. Critical mass, more deliverables to show, make it a regular part of the observation.

Make drugs? No. Incyte can't make small molecules (a trademark of big pharma), no chemical capabilities. Target discovery and validation is what they are looking at.

If you to look at 2000 R&D what would Incyte have considered investment spending? Some, but meaningfully less than 2001.

Question on cross selling and integration with Proteome acquisition.

Integration has only been taking place over the past 4 weeks. Give us some time.
Not a lot of work to do with Proteome. Incyte is having them annotate database info. Just beginning to build up the content. Won't be giving specific guidance.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.