Washington Editor

Lagging revenues from its genomic data product lines have forced Incyte Corp. to shutdown its California facilities, eliminating 57 percent of its work force, or 257 jobs, and about $50 million in annual operating expenses.

The firm will transfer its headquarters from the Palo Alto site to Wilmington, Del., where its remaining 180 employees will focus on drug discovery and development. Incyte also will retain its proteome subsidiary in Beverly, Mass., which employs 35 people who produce the BioKnowledge Library information product line.

Like some other companies in the industry, Incyte is going through growing pains, or rather transition pains, as it moves into full-time drug discovery and development. In Incyte's case, the team is being led by CEO Paul Friedman, former president of DuPont Pharmaceuticals Research Laboratories, of San Diego, and prior to that, president of R&D for the DuPontMerck Pharmaceutical Co. Several members of Incyte's upper management are new to the company, yet experienced in the industry.

Of the decision to close the facility, Friedman told BioWorld Today: "When we came here in December 2001, it was not our intent at that point not to have the genomics information business be a successful venture as part of the overall strategy of being a drug development company. It wasn't central to it, but we thought if we could have it as a cash-flow-positive activity, it would defray the burn of the drug discovery activity. That turned out not to be possible."

Despite Incyte's best efforts, Friedman said revenues from the LifeSeq and ZooSeq product lines generated at the Palo Alto facility have been steadily declining. "We can no longer justify the infrastructure and costs of maintaining our California operations," he said.

The facility will be closed April 2. Financially, Incyte recorded $11.5 million in restructuring costs in 2003 and expects to spend another $47 million in 2004 related to the closure. The cash impact in 2004 in restructuring-related expenses is expected to be $23 million. Closing the site does not alter the potential milestone and royalty obligations from past and present LifeSeq subscribers, nor does it impact the company's ability to leverage its gene-related intellectual property portfolio.

LifeSeq and ZooSeq are collections of proprietary genomic data that fold in certain public content and analyze them using analytical tools, some public and some private, John Keller, Incyte's executive vice president and chief business officer, told BioWorld Today.

Commenting on the difficulty of making money in the genomic information business, Keller, who joined Incyte in September after working for London-based GlaxoSmithKline plc, said, "You can look at the history of companies that have been operating in this space - a number of them have folded, some were acquired at less than their cash value, and others are dramatically refocusing their business model."

Indeed, Alex Hittle, a biotechnology analyst with A.G. Edwards & Sons Inc., of St. Louis, told BioWorld Today that research and development spending is getting tighter and genomic information is no longer novel. "The government and academia are putting [genomic] information on the web daily, so the ability to generate an information asset that is worth paying for is more difficult," he said. "You do see companies like Incyte making a move to drug development, because, frankly, drug development is a better business."

Had Incyte decided to maintain the Palo Alto facility, Keller said the company would have had to make a substantial investment to hold the revenue at a relatively constant level.

Beyond that, Friedman said the genomic information business would have become a distraction from drug development.

He said the company is advancing well in its drug programs focused on orally available small molecules to treat medical conditions in the areas of HIV, inflammation, cancer and diabetes.

Reverset, Incyte's most advanced product, is an HIV retroviral drug candidate licensed in September from Pharmasset Ltd., of Atlanta. (See BioWorld Today, Sept. 9, 2003.)

Friedman expects to release Phase II data on Reverset in a conference call Feb. 11, and hopes to enter Phase III work in 2005.

Next in line is the firm's CCR2 receptor antagonist program. CCR2 is a key receptor found on monocytes, and it controls their migration into sites of inflammation. Scientists believe CCR2 receptor antagonists might have therapeutic applications in rheumatoid arthritis, multiple sclerosis, atherosclerosis and possibly other disorders. Incyte expects to enter clinical testing in a CCR2 compound during the first half of 2004.

The company also has a protease inhibitor program in breast cancer and other solid tumors, and a protein phosphatase inhibitor program with possible treatment in diabetes.

In other business, the company released earnings for its fourth quarter and full year ended Dec. 31. Total revenues for the fourth quarter and full year were $10.3 million and $47.1 million, respectively, as compared to $21.1 million in the fourth quarter of 2002 and $101.6 million for the year ending Dec. 31, 2002.

The net loss for the fourth quarter and full year was $40.8 million, or 56 cents per share, and $166.5 million, or $2.33 per share, respectively. By comparison, the net loss for the fourth quarter of 2002 was $67.5 million, or $1 per share, and for the full year of 2002 was $136.9 million, or $2.03 per share.

As of Dec. 31, 2003, the company had cash and short-term investments of about $294 million.

Incyte's stock (NASDAQ:INCY) closed Tuesday at $9.42, down 29 cents.

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