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This repeats most of what was previously published, but what the heck, one fills in the other, I think. The one difference is I thought I heard 30,000 not 40,000, but hopefully I'm wrong!

My summary of Incyte's view: Incyte is the leader. We have the resources and the dominant intellectual property ownership. We have the most committed revenues and dominant share of future pharmaceutical revenues. We have 19/20 of top pharmaceutical companies and are rapidly expanding our existing programs and moving into academics and biotechs. We have proteomics, gene expression, SNPs, transgenic programs, etc. that we and our subsidiaries started YEARS ago. We will soon be leveraging our stuff on the internet. We will focus our efforts on providing drug companies with the tools they need.

BTW, I listened to call through dialpad.com. Great site.

Financial Performance
19% increase sequentially in revenues
genomic services decreased modestly sequentially
interest $10.8 million

Long term investments had a $27 million increase/appreciation since end of 1999. This represents value only in publicly-held companies, therefore increases in private companies such as diaDexus are not accounted for in the above number.

diadexus raised $100 million in a private offering. Incyte now owns under 20%, so INCY no longer record portion of losses

$681 million in cash

Deferred revenue of $34 million, stronger cash position whereby some agreements require quarterly vs. annual pre payments

Maintain $190 to $199 million revenue estimate for year. Expect greater expenses for the 3rd and 4th quarter to reflect greater internet investment. Paid for by interest savings in the 2nd, 3rd and 4th quarters. Net loss for year high 20 to 30 million range.


Recent Business Events
Growing direct sales and marketing organization. Have grown sales force from 10 person Palo Alto-based to 90 person global organization.

They hired for England the former head of Chiron's European operations (VP for intl therapeutic sales). Also hired German and French heads.

Key increase in the quarter led by move from Big Pharma to biotech and academic marketplaces.
There is accelerating adoption of databases and custom genomic solutions.

Pharmaceutical ground breaking deals

Aventis SNP application for a proprietary drug. Apply Incyte's proprietary single strand confirmation technology. Goal is to discover SNPs within the genes that are involved in the drug metabolism of a clinical trial drug development candidate. Goal is to correlate the existence of SNPs in cell populations of clinical trial population with efficacy of drug. Not hard to imagine the future in which every clinical trial will go through such an application of this technology. Intend to use this aggressively as a marketing tool.

Remember when SNP first brought up 3 years ago, many very excited. Since then, many have been disappointed with the application of SNPs. But Incyte emerging as commercial leader in application of SNP applications. Hexagen and Incyte have been doing this for several years now.

Elli Lilly protein therapeutic development and gene patenting. Lilly to work with Incyte to prioritize full-length cloning and patenting of genes that are strong candidates for therapeutic protein development. Full-length genes and patents resulting from this collaboration will be given to LifeSeq Gold subscribers on a first come first serve basis for protein therapeutic development purposes.

Lilly committed to license multiple therapeutic protein patents from Incyte. (See Q/A comments for more info).

Intellectual Protocol
Incyte patent portfolio has resulted in ground-breaking agreements.

43 issued last quarter. 67 allowances last quarter. Total of 516 issued and allowed patents. This is only the tip of the iceberg of the total number of applications flowing through pipeline to the USPTO. The Pharmaceutical industry is fully aware that Incyte is on the road to patenting a significant portion of drug targets in human genome.

CEO quoted from WSJ Feb. 10 article, George Mills, head of research at Pfizer. “Incyte has built itself a privileged position. It will be one of a very small group with very large patent resources.

Patent portfolio in discussions. As they look to move Incyte discoveries to the clinic. Lilly and Aventis demonstrate ability to monetize the value of its gene patent portfolio.

The Lilly and Aventis agreements depend on receiving patents from USPTO.

But, 30,000 royalty-bearing licenses which do not require patents.

Another quote from WSJ- Sr. executive at Zeneca. Over 50% of current drug development programs at Zeneca are developed using Incyte technologies and are royalty bearing to Incyte.

If pipeline flows through, Incyte will have significant portion of entire revenue of pharmaceutical industry mid decade. Expect revenues from milestone payments as first drugs enter clinical trials later this year or 2001.

With AHP Lifeseq deal, now 19 of top 20 big pharmaceutical compaies now work with Incyte.

Incyte will continue to grow leadership position in genomic information.

Questions
Kevin Tang w/ Deutche Bank Alex Brown
Lilly therapeutic deal: Will royalty rates be higher on proteins?

Patent on gene confers exclusivity on drug. Therefore, royalties will be higher - in the mid to high single digit range.

Majority of royalties are non-exclusive, low single digit (30,000 mentioned earlier). (Note: What I think this means is that in general companies pay a subscription fee for access to LifeSeq. When they check out a physical clone from Incyte, they are on the hook for a non-exclusive, low single digit royalty and/or milestone payment if that clone leads to a drug target or drug that makes it through clinical trials. Multiple companies can choose the same drug target, hence non-exclusive).

Are more companies interested in deals like Lilly?

There is increasing interest in companies wanting to prioritize the clones we take to full-length status and take patents on. A number of clients have taken options to license individual genes. Incyte should be able to announce full licensing agreements and clinical events as they go forward. Incyte will be able to make this transparent to the market place as they move forward from preclinical work to clinical milestones.

Earlier this year they did sign biotech agreements (Vertex, MLNM, etc). In general, Incyte has noted that biotechs move more aggressively toward clinical development than Big Pharma. Since licenses (therapeutic) go on a first come first serve basis, this is leading to more competition and more rapid uptake of the options to license.

Candidates are both small molecules and therapeutic proteins. Majority of candidates are small molecules.

Internet strategy update

Incyte started Gene-by-Gene initiative 3 months ago which was well received by community. The sequence part with full ASP-enhanced version will be available in a few weeks. Now they do it via email. (Note: this wasn't mentioned in CC, but if you go to website, you'll see a teaser ad about the new incite.com coming on August 1).

New site will be fully-internet enabled. Conduct own searches in real time.

Comment on transgenic mice/knockout genes which other companies have been getting a lot of press about lately. What is Incyte status?

We've already been doing this for a long time. Since 1996 Genomic Systems has been working on transgenic systems in St. Louis Their custom genomic program is well positioned to use transgenic mice in creating murine expression databases and so forth. This is a growing and significant part of custom genomics program. Really exciting part of business. A significant amount of IP associated with it. There are some fundamental patents in mutagenesis. Will have greater visibility in upcoming quarters.

Lehman
Data mining
Therapeutic proteins. Group dedicated to mining for some time. It's no secret where the prime real estate is. We've had a group devoted to that for some time.

Lilly vs. Old Millenium agreement. Didn't Lilly have an agreement with MLNM on therapeutic protein development?

Incyte understanding Millenium agreement doesn't exist anymore. Lilly's agreement with Incyte started after the end of the MLNM agreement with MLNM. (Note: this wasn't in conference call, but the LLY protein therapeutic agreement was with a subsidiary of MLNM, Millenium Biotherapeutics. That agreement was terminated in 1999 when MLNM folded subsidiary back into main company and bought out LLY's share of subsidiary. LLY and MLNM still collaborate on other areas. See www.mlnm.com for further info. But still, I think this just shows how powerful the Incyte technology is when a big company like Lilly signs up with INCY when they had already had a similar agreement with another large genomics company).

SNP How many SNPs 40,000 8,000 coding or what? (Not sure of exact question).
It's hard to compare SNP numbers from different companies. It all depends on statistical criteria. Incyte has wet lab-confirmed SNPS, 100% certain SNPs.
In discussions with Pharmaceuticals in the last 6 months we've had consistent feedback that we're the company that's delivering consistent value to them while other companies have been working on SNP maps whose value is further down the road.

H&Q
Where is growth and what is competition from GLGC and CRA? Discuss what are the relevant issues in pharmaceutical company thinking

Where is growth? Small databases, many deals in clone sets, smaller databases with small companies. We have many deals that are below threshold, otherwise would be announcing a deal every day. A lot of growth will come from infrastructure we've put in place to distribute our data broadly, which will be enhanced by our internet initiatives.

We will continue to make announcements with large pharmaceutical companies.

One of disappoints with Q2 was that they had no gene expression database deal to announce; Incyte hopes to announce shortly based on deal cycle in place.
Continue to see with Life-Seq database and clone resources, we see no real competition with biotechs and academics.

Incyte is firing on all cylinders on product lines and new initiatives.

Competition with CRA is certainly on wall street's mind. CEO claims that Incyte really just doesn't see in marketplace that is out there. CRA competition is not Incyte, it is HGP and DoubleTwist. It's a battle that doesn't concern us with our transcribed gene database. If and when their transcribed gene databases and proteomic effort gets on the ground and gene directed SNPs, gene expression, protein expression. Celera is not a competitor at this point in time.

GLGC and gene expression database. Other than their academic deals, Neither put many points on board on gene expression database yet during Q2. Very early in game. Incyte has some promising deals in cycle. Based on their market franchise with Big Pharma and linking of expression with Life Seq data gives them a big advantage.

What is a threshold of press release announcement? Revenue?

No single criteria. Not just one area. (Note: My belief is that they should lower the threshold, especially if they want to increase academic and biotech reach. The more publicity, the better. Sure, Big Pharma may know what's what, but the small institutions may only have heard about CRA).

First Sec. Van Kasper.
Royalty-bearing licenses and FT Article Clarification. Does Incyte plan on spinning off or issuing bonds for the royalty portion of the company?

Financial Times, embellished article, such a scheme would not be likely before 2002. It would be a powerful thing to do if you already had significant revenue from that.

What is impact of Life Tech in clone area pact with CRA on Incyte's business?

No idea on impact. This is a typical CRA question. (Said with exasperation, I think). They are embarking on a project we're already 6 years into. Incyte already have the dominant market share. They (LT) have it all to do ahead of them. That's why Lilly and Pfizer have embarked on huge collaborations with us for full length clones and to file patents on them.

C. Gordan?
Microarray
Custom microarray services for academics, shouldn't they emphasize this?

Incyte does this already. Incyte will have Drosophila wide chip in October. Technology continues to improve. Majority of production in Fremont in is for content for Incyte's genome databases.

July 10. 1st schedule conf with new judge. No new schedule. No Markham hearing yet….whatever seemed to be the attitude.
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