I N C Y T E T h e D r i v e t o D i s c o v e r . T h e E x p e r i e n c e t o D e l i v e r . Incyte Corporation Experimental Station Route 141 & Henry Clay Road, Building E336 Wilmington, DE 19880 t: 302.498.6700 f: 302.425.2750 www.incyte.com Incyte THE DRIVE TO DISCOVER. THE EXPERIENCE TO DELIVER. INCYTE IS: Incyte is a drug discovery and development company with a growing pipeline of novel small molecule drugs to treat HIV, inflammation, cancer and diabetes. The company’s most advanced product candidate, Reverset , is an oral, once-a-day therapy in Phase II clinical trials to treat patients with HIV infections. Currently, Incyte has four drug discovery programs underway, the most advanced of which, CCR2, is expected to enter the clinic in the first half of 2004. ™ Pictured here is Chu-Biao Xue, Ph.D., an executive director in Incyte’s chemistry group and project leader for the CCR2 receptor antagonist program. AR: 03 D E A R S H A R E H O L D E R , We began 2003 determined to make meaningful a diminishing revenue stream and a vision to progress in building a leading drug discovery build a pharmaceutical company. Today, Incyte and development company and I am pleased has approximately 140 scientists dedicated to to report that the last 15 months have proven discovery biology and medicinal chemistry, as extremely successful in that regard. We have well as scientific management with extensive had to make some difficult decisions along the experience in successfully discovering, developing way, particularly with respect to our information and commercializing pharmaceutical products. products line, but we believe that those decisions During the last 15 months, we have strengthened are clearly in the best interests of the company our balance sheet, expanded and advanced our and our shareholders. During the first quarter of drug pipeline, and assembled an experienced 2004, we concluded that the extensive changes leadership team to drive our company’s drug that have taken place in the market for genomic discovery and development efforts forward. research products and services have made the continuation of our information products Measure Our Success line too uncertain and too costly. With that de- by the Strength of Our Pipeline termination, shortly after year end, we announced that we would close our Palo Alto facility, which housed Incyte’s information products line, on April 2, 2004. This decision has allowed us to focus our resources and talent on building a pipeline of novel, orally available, small molecule therapeutics for the treatment of human immuno- deficiency virus (HIV) infection, inflammation, cancer and diabetes. The talented team at Incyte has accomplished I believe that the most important ongoing measure of success for our company will be the advancement of our pipeline and our ability to fuel that pipeline with high-quality clinical candidates. Incyte’s pipeline now contains exciting clinical and preclinical programs including Reverset, our Phase II compound for the treatment of HIV, a CCR2 receptor antagonist, for treating chronic inflammation, that is poised to enter the clinic in the first half of 2004, and preclinical programs including inhibitors of sheddase, a novel target a great deal in a very short period of time. for cancer treatment (formerly referred to as our When I joined the organization in 2001, we cancer protease program) and inhibitors of a were an information products business with specific protein phosphatase. “ I b e l i e v e t h a t t h e m o s t i m p o r t a n t c o m p a n y w i l l b e t h e a d v a n c e m e n t f u e l t h a t p i p e l i n e w i t h h i g h - q u a l i t y We have built this pipeline through both days. Reverset was well-tolerated at all doses internal discovery and in-licensing of a clinical- and effective at reducing the viral load in all stage product candidate. Our HIV program is treated patients, with the amount of HIV in the a demonstration of our ability to identify and patients’ blood being reduced by an average of in-license promising new product candidates, approximately 98%. while our CCR2 receptor antagonist program is a testament to our ability to take an internal Based on the current data, we believe that discovery through preclinical testing and into Reverset has the potential to be a very potent drug IND-enabling development. Remarkably, in this for treating HIV. Furthermore, we believe it has instance, all of this was accomplished in less than the potential to inhibit many clinically prevalent two years. mutant strains of HIV that show resistance to currently approved therapies. We will begin Let me now provide some further detail on our testing the potential of Reverset against resistant current programs, our progress in 2003, and our strains of HIV this year as we begin our second development plans for 2004. Reverset – Demonstrated Positive Phase IIa Results lead HIV product candidate, Reverset, Our is a reverse transcriptase inhibitor being de- veloped as a once-daily, oral therapy. We formed a collaborative licensing agreement with Pharmasset for Reverset in September 2003, and recently reported positive results from a 10-day, dose-escalating, placebo-controlled trial designed to evaluate Reverset as a single therapy Phase II trial and expect that we will initiate pivotal Phase III testing in 2005. There is a serious need for new HIV therapies that are effective against these mutant strains and that are well- tolerated and easy to use. We believe that Reverset can address these issues. CCR2 Receptor Antagonists – from Discovery to IND in Less than Two Years This program is focused on the development of a new class of small-molecule drugs to treat chronic inflammatory diseases, such as rheumatoid in 30 treatment-naive HIV infected patients. arthritis, multiple sclerosis and possibly neuro- The patients in the trial received 50, 100, or pathic pain and atherosclerosis. CCR2 is a 200 milligrams of Reverset once a day for 10 receptor that resides on the surface of blood cells o n g o i n g m e a s u r e o f s u c c e s s f o r o u r o f o u r p i p e l i n e a n d o u r a b i l i t y t o c l i n i c a l c a n d i d a t e s . ” called monocytes and controls the migration and metastasis of breast cancer, and possibly of these cells into sites of inflammation, other cancers. We have shown efficacy of our where they become macrophages, a cell type sheddase inhibitors in animal tumor models and critical to the induction and maintenance of an have advanced a lead compound into preclinical inflammatory response. If monocyte migration development. We hope to begin human testing is blocked through the administration of a CCR2 of this compound by the end of 2004. receptor antagonist compound, the potential exists to abrogate or significantly diminish the Fueling the Pipeline – Internal Discovery & inflammatory response. In-licensing Opportunities Incyte will be measured on the strength of our Through our internal discovery efforts we pipeline. Along with the programs mentioned have identified a series of orally available above, we have a number of earlier discovery CCR2 receptor antagonist compounds and programs in cancer and diabetes. As the year selected a lead candidate to advance into 2004 unfolds, you can expect to see Incyte clinical development. We plan to initiate further fuel our pipeline by bringing additional human clinical testing of this compound in internal programs forward into preclinical the first half of 2004. While we are still in the early stages of development for this new class of drugs, we believe the potential of this type of small molecule anti-inflammatory agent is quite significant. Sheddase Inhibitor – Our Second Internal Discovery to Advance to Preclinical Development We have identified several novel, potent and development, while continuing to pursue the in- licensing of compounds that are either in clinical development or about to enter the clinic. We Have the Drive to Discover and the Experience to Deliver In the past two years, we have assembled an exceptional team to drive our business forward. While all of us are fairly recent additions to Incyte, the majority of us have worked together before orally available small molecule inhibitors of and successfully developed and commercialized sheddase – a protease enzyme that is a part of pharmaceutical products. the signaling mechanism critical for the growth This year will be remembered as the year Incyte In closing, I would like to thank Jon Saxe, who is focused its efforts on becoming a leading drug retiring from our Board of Directors, for his years discovery and development company. We have set ambitious, but achievable, goals for 2004. of dedicated service, leadership and counsel to our organization. We plan to: Initiate and enroll a second Phase II trial for Reverset, I look forward to updating you on our progress throughout 2004, which promises to be an I appreciate your continued interest and support. Advance our first two internally discovered product candidates, a CCR2 receptor antagonist to treat chronic inflammatory diseases and a sheddase inhibitor to treat breast cancer, into human clinical testing, and important year for Incyte. Sincerely, Continue to fuel our pipeline with preclinical candidates from our discovery programs and potentially through the in-licensing of a clinical- Paul A. Friedman, M.D. Chief Executive Officer stage compound. April 2004 Along with scientific prowess and development expertise, in the past year we have added the requisite skills and experience in finance, business development and legal strategy and counsel to our executive team. Our goal is to have every Incyte employee work on a successful pharmaceutical product. I believe this goal is achievable given our organization’s collective experience, tenacity and maturity. MACROPHAGE CELLS Incyte’s CCR2 receptor antagonist program is a new class of drugs with the potential to treat chronic inflammation by interfering with the action of a key inflammatory cell known as the macrophage. Under normal circumstance, macrophage cells clean up damaged, inflamed tissue and then cease their activity. In chronic inflammation, macrophage activity continues inappropriately and the macrophages release molecules toxic to the tissue, including destructive enzymes and pro-inflammatory cytokines, such as TNF, which recruit other inflammatory cells. The severity of inflammation in a number of disease states correlates with the number of macrophages in tissue, and effective anti-inflammatory therapies are associated with a reduction in the number of macrophages. Incyte FINANCIAL REVIEW 03 INCYTE PIPELINE Novel Orally Available Small Molecules Discovery Preclinical Phase I Phase II Phase III Program Indication Reverset ™ HIV CCR2 Receptor Antagonists Rheumatoid Arthritis Multiple Sclerosis Neuropathic Pain Atherosclerosis Sheddase Inhibitors Cancer Phosphatase Inhibitors Cancer Diabetes J & J Agreement Diabetes BOARD OF DIRECTORS EXECUTIVE MANAGEMENT Richard U. De Schutter Chairman of the Board Formerly Chairman and Chief Executive Officer DuPont Pharmaceuticals Paul A. Friedman, M.D. Chief Executive Officer Incyte Corporation Barry M. Ariko President, Chief Executive Officer and Chairman Mirapoint Inc. Julian C. Baker Managing Partner Baker Bros. Advisors, LLC Paul A. Brooke Managing Member, PMSV Holdings LLC Advisory Director, Morgan Stanley Venture Partner, MPM Capital Frederick B. Craves, Ph.D. Chairman and Managing Director Bay City Capital, LLC Roy A. Whitfield Formerly Chairman of the Board and Chief Executive Officer Incyte Corporation Paul A. Friedman, M.D. Chief Executive Officer David C. Hastings Executive Vice President and Chief Financial Officer John A. Keller, Ph.D. Executive Vice President and Chief Business Officer Brian W. Metcalf, Ph.D. Executive Vice President and Chief Drug Discovery Scientist Patricia A. Schreck Executive Vice President and General Counsel Paula J. Swain Executive Vice President, Human Resources Transfer Agent and Registrar Mellon Investor Services LLC PO Box 3315 South Hackensack New Jersey 07606 or 35 Challenger Road Ridgefield Park, New Jersey 07660 Phone: 800/522-6645 TDD for Hearing Impaired: 800/231-5469 Foreign Investors: 201/329-8660 TFF Foreign Investors: 201/329-8354 www.mellon-investor.com Annual Meeting The Annual Meeting of Stockholders will be held May 25, 2004, at 10:30 a.m., Eastern Daylight Time, at the Hotel du Pont, 11th and Market Streets, Wilmington, Delaware. Outside Counsel Pillsbury Winthrop LLP Independent Auditors Ernst & Young LLP Market Information Incyte’s Common Stock trades on The Nasdaq Stock Market under the symbol INCY. Investor Relations You can obtain recent press releases and other publicly available information on Incyte by visiting our web site at www.incyte.com. Contact Pamela Murphy Vice President, Investor Relations and Corporate Communications Email: pmurphy@incyte.com Corporate Headquarters Incyte Corporation Experimental Station Route 141 & Henry Clay Road Building E336 Wilmington, Delaware 19880 REVERSET MOL EC ULE This image is a model of Reverset (green) binding to the viral polymerase and therefore blocking viral replication of HIV. Reverset is an investigational nucleoside analogue reverse transcriptase inhibitor (NRTI) that is being developed as a once-a-day oral therapy for use in combination with other antiretroviral drugs for patients with HIV infections. Forward-looking Statements Except for the historical statements contained herein, the statements contained in this annual report, including without limitation, statements as to the anticipated advancement and composition of our pipeline, the expected timing, progress and other information regarding our preclinical and clinical trials, our development plans and goals for 2004, the potential effectiveness of our compounds in treating disease, and anticipated in-licensing opportunities, are forward- looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on our current intent, belief and expectations, using information currently available to us, and are therefore subject to certain risks, uncertainties, and assumptions that may cause actual results to differ materially, including the results of further scientific research, the impact of technological advances and competition, unanticipated delays or uses of capital, and other risks discussed in our Annual Report on Form 10-K for the year ended December 31, 2003, which is contained herein, and in our other filings with the Securities and Exchange Commission. These forward-looking statements speak only as of the date hereof. Incyte disclaims any intent or obligation to update these forward-looking statements. m o c . n g i s e d r e t s o f . w w w