As it prepares to move its lead product into Phase III trials next year, Incyte Corp. conducted a common stock offering raising about $87.75 million in gross proceeds.

The Wilmington, Del.-based company agreed to sell 9 million shares of its common stock at $9.75 per share, a discount from Monday's closing stock price of $10.38. The stock (NASDAQ:INCY) dropped 63 cents on Tuesday to close at $9.75.

Morgan Stanley & Co. Inc., of New York, acted as the sole underwriter for the offering. The firm has a 30-day option to purchase up to about 1.4 million additional shares to cover overallotments.

"We continue to be confident in our emerging pipeline," said David Hastings, the company's executive vice president and chief financial officer. "We think this offer strengthens the balance sheet to really balance our use of proceeds between moving Reverset forward and paying down old notes."

According to its prospectus, Incyte said it should receive $83.3 million in net proceeds from the offering, not including the exercise of the underwriter's overallotment option. The company plans to use proceeds for general corporate purposes, including repayment of outstanding debt and research and development activities. A portion of the proceeds might be used for acquisitions or investments.

Incyte is focused on the discovery and development of small-molecule drugs to treat HIV, inflammatory disorders, cancer and diabetes. Its most advanced product, Reverset, is in Phase IIb trials to treat HIV. Reverset is a nucleoside analogue reverse transcriptase inhibitor being developed as a once-a-day oral therapy for use in combination with other antiviral drugs.

"The guidance that we've been giving is we hope to move Reverset into Phase III in the third quarter of 2005," Hastings told BioWorld Today.

Incyte signed a collaborative licensing agreement in September 2003 with Atlanta-based Pharmasset Inc., giving Incyte exclusive rights in the U.S., Europe and certain other markets to develop, manufacture and market Reverset. The companies presented data this year from a Phase II study of Reverset dosed once daily for 10 days. Of 30 treatment-na ve patients, those receiving Reverset had a 98 percent reduction in the amount of HIV found in their blood. The study also demonstrated a clinically significant reduction in viral load for seven of eight patients who had failed previous therapies. Reverset was well tolerated, and patients experienced no serious drug-related adverse events.

The company began in June a 180-patient Phase IIb trial for treatment-experienced HIV-infected patients. Results from that trial are expected next summer and could be followed by the Phase III trial. Incyte hopes to file a new drug application in late 2006, seeking priority review.

Aside from Reverset, Incyte is developing antagonists to the CCR2 receptor. The lead candidate from that program is in Phase I trials. Incyte said the compounds have potential in treating rheumatoid arthritis, multiple sclerosis and atherosclerosis. CCR2 is a key chemokine receptor found on monocytes that controls their migration into sites of inflammation, where they become activated as macrophages.

"We've said we plan to put it into Phase IIa proof of concept in the first quarter of next year," said Pam Murphy, Incyte's vice president of corporate communications.

Behind the CCR2 receptor antagonist program, the company is focused on sheddase inhibitors. The sheddase protease appears to contribute to the growth and metastasis of breast cancer and possibly other cancers, and it also appears to modulate the response of malignant cells to certain growth factors. If preclinical results prove positive, Incyte could move its first sheddase inhibitor into the clinic in the first quarter of 2005.

While Incyte previously had interests in genomic and proteomic information products, it decided earlier this year in February to close its Palo Alto, Calif., headquarters and discontinue its focus in that area. The company cut 57 percent of its work force and about $50 million in annual operating expenses. (See BioWorld Today, Feb. 4, 2004.)

Following the restructuring, the company held onto its gene and gene technology-related intellectual property portfolio and its BioKnowledge Library product line, produced by Incyte's proteome facility in Beverly, Mass. Today, Incyte has 178 employees in Wilmington and another 35 employees at its Beverly facility.

Following the offering, Incyte has 82.6 million outstanding shares. As of June 30, the company had $473.6 million in cash, cash equivalents and marketable securities.

In February, Incyte priced $200 million of 3.5 percent convertible subordinated notes due 2011, also to cover the repayment of outstanding debt. (See BioWorld Today, Feb. 17, 2004.)