Incyte Annual Report 2009

FY2009 Annual Report · Incyte

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Boa rd of direc to rs

ex ecu ti ve Manage Me nt

Richard U. De Schutter
Chairman of the Board
Formerly Chairman
and Chief Executive Officer
DuPont Pharmaceuticals Company

Paul A. Friedman, M.D.
President and Chief Executive Officer
Incyte Corporation

Barry M. Ariko
Formerly President, Chief
Executive Officer and Chairman
Mirapoint, Inc.

Julian C. Baker
Managing Member
Baker Bros. Advisors, LLC

Paul A. Brooke
Formerly Chairman,
Alsius Corporation
Managing Member, PMSV Holdings, LLC
Formerly Senior Advisor, Morgan Stanley

Paul A. Friedman, M.D.
President and Chief Executive Officer

Patricia S. Andrews
Executive Vice President
and Chief Commercial Officer

Steven M. Friedman, M.D.
Executive Vice President,
Biology and Preclinical Development

David C. Hastings
Executive Vice President
and Chief Financial Officer

Richard S. Levy, M.D.
Executive Vice President
and Chief Drug Development &
Medical Officer

Brian W. Metcalf, Ph.D.
Executive Vice President
and Chief Drug Discovery Scientist

John F. Niblack, Ph.D.
Formerly Vice Chairman
and President of Global Research
and Development
Pfizer Inc.

Roy A. Whitfield
Formerly Chairman of the Board
and Chief Executive Officer
Incyte Corporation

Patricia A. Schreck
Executive Vice President
and General Counsel

Paula J. Swain
Executive Vice President,
Human Resources

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or
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Annual Meeting
The Annual Meeting of Stockholders
will be held May 18, 2010, at 10:00 a.m.,
Eastern Daylight Time, at the
Hotel du Pont, 11th and Market Streets,
Wilmington, Delaware.

Outside Counsel
Pillsbury Winthrop Shaw Pittman LLP

Independent Registered Public
Accounting Firm
Ernst & Young LLP

Market Information
Incyte’s Common Stock trades on
The Nasdaq Global 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
302/498-6700

computer-generated rendering of
incB18424 and a
JaK (janus kinase) enzyme

Forward-looking Statements
Except for the historical information set forth herein, the matters set forth in this annual report, including without limitation statements regarding our
anticipated future success in drug discovery and development, plans regarding our product pipeline, plans and expected timelines for advancing our drug
candidates through clinical trials, NDA submission and potential commercialization, potential therapeutic and commercial value, including attributes and
indications of our drug candidates, intentions to build our commercial operations and commercialize drug candidates ourselves, and our expectations
with respect to our agenda and goals for 2010, contain predictions, estimates and other forward-looking statements. These forward-looking statements
are subject to risks and uncertainties that may cause actual results to differ materially, including the risk that results of clinical trials may be unsuccessful
or insufficient to meet applicable regulatory standards, the high degree of risk associated with drug development and clinical trials, the uncertainty of the
FDA and European approval process, risks related to the timing of and patient enrollment in clinical trials, the impact of competition and technological
advances, the results of further research and development, unanticipated delays, risks associated with our dependence on our relationships with our
collaborators, risks related to obtaining effective patent coverages for our products and other risks detailed from time to time in Incyte’s filings with the
Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2009. Incyte disclaims any intent or obligation to update
these forward-looking statements.

THE DRIVE TO DISCOVER.
THE EXPERIENCE TO DELIVER.

INCYTE

Ann ua l Report 2009

MATURING PIPELINE
MATURING PIPELINE

Target

INCYTE Product

Indication

Phase I

Phase II

Phase III

ONCOLOGY

JAK

INCB18424 (oral)1

Myelofibrosis

PV / ET

Other hematologic tumors

Sheddase

INCB7839

Breast cancer

cMet

IDO

INCB280602

Solid cancers

INCB24360

Oncology

INFLAMMATION

JAK

INCB280503

Rheumatoid Arthritis

INCB18424 (topical)

Psoriasis

DIABETES/METABOLISM

HSD1

INCB13739

Type 2 diabetes

1Novartis: out-licensed ex-US rights, Incyte retained US rights 2Novartis: out-licensed worldwide rights 3Lilly: out-licensed worldwide rights

About INCB18424

INCB18424, an oral JAK1/JAK2 inhibitor, is our lead compound in clinical development and has
the potential to be the first therapy approved in the US for the treatment of myelofibrosis
(MF). MF is a life-threatening condition and considered to be the most serious of the
myeloproliferative neoplasms, a group of closely related blood disorders that lead to abnormal
numbers or function of blood cells.

In 2009, we launched two Phase III registration trials for INCB18424 in MF:
COMFORT-I in the US and COMFORT-II in Europe. Patient recruitment for
COMFORT-I has been completed and the trial is expected to include over 280
patients. COMFORT-II is fully enrolled and includes approximately 220 patients.
Both studies are expected to be completed in 2010.

Computer-generated image of the JAK pathway (not drawn to scale)
1. Cytokine 2. Cytokine receptor 3. Cell membrane 4. Activated JAK enzymes 5. INCB18424

Targeting the JAK Pathway

JAKs are enzymes that reside inside cells and control specific biological activities such as production of new
blood cells and maintenance of immune system function. Over-activation of the JAK pathway can occur as
a result of genetic mutations and/or elevated cytokine levels and lead to abnormal numbers or function of
blood cells. There are four JAK enzymes, JAK1, JAK2, JAK3 and TYK2, and several JAK inhibitors are currently
in development. Some target a specific JAK enzyme while others block two or more members of the JAK
family. Incyte has chosen to block JAK1 and JAK2 to selectively target the two key mechanisms that are
thought to lead to over-activation of the JAK pathway, genetic mutations and high levels of cytokines.

To Our Shareholders:

2009 proved to be a transformative year for Incyte

We advanced our lead product candidate into Phase III registration trials,
formed development and commercialization alliances with two top-tier
pharmaceutical companies and significantly strengthened our financial position.
These achievements have accelerated our transition from a productive R&D
organization to an emerging pharmaceutical company that is preparing to market
its first product.

In 2010, we intend to build on this progress and move closer to our goal of
becoming a successful commercial business driven by strong science.

JAK inhibitors: Focusing on our near-term opportunity

Our most advanced product candidate is the oral JAK (janus kinase) inhibitor
INCB18424 (‘424) which has the potential to be the first approved therapy
in the United States for myelofibrosis (MF), one of several disorders known
as myeloproliferative neoplasms (MPNs). MF is a disabling, often life-
threatening condition characterized by abnormal blood-cell production and
fibrosis of the bone marrow. The need for an effective treatment is urgent.

Last year, ‘424 entered two Phase III registration trials—COMFORT-I in the
US and COMFORT-II in Europe. We expect these studies to be completed in
2010. If the results are positive, we intend to file a New Drug Application
in the US in 2011.

In anticipation of the potential approval of ‘424, we have recruited a core
marketing team with experience in commercializing new oncology
products. The team is conducting extensive market research to sharpen
our understanding of treatment practices in MF and is also evaluating the
commercial opportunity for ‘424 as a potential treatment for two other MPNs:
polycythemia vera (PV) and essential thrombocythemia (ET), where ‘424
has also shown clinical benefits in a Phase II single-arm trial.

The JAK pathway is implicated in a number of pathologies and we believe
that inhibitors of these enzymes may prove efficacious in treating not only
MPNs, but also other hematological malignancies and solid tumors. JAK
inhibitors have also been shown to be of potential value in treating several
inflammatory and autoimmune conditions.

“In the ongoing Phase II trial, INCB18424 continues to provide
durable and previously unachievable clinical benefits in patients
with myelofibrosis. It is equally gratifying to see significant clinical
activity in patients with advanced polycythemia vera and essential
thrombocythemia.”

Srdan Verstovsek, M.D., Ph.D., Associate Professor, Leukemia Department,
Myeloproliferative Disorders Program Leader, M.D. Anderson Cancer Center.
Dr. Verstovsek is serving as the principal investigator for the ‘424 MPN clinical programs.

New alliances: Expanding our efforts in MPN and beyond

Given the breadth of the opportunity with JAK inhibitors, we have secured
two strong corporate alliances to expedite and support our own efforts. The
first is with Novartis for oral ‘424 for hematology-oncology indications; the
second is with Lilly for our JAK inhibitor INCB28050 (‘050) for inflammatory
and autoimmune diseases.

Novartis is a global pharmaceutical company and recognized leader in the
commercialization of novel oncology drugs. As was our goal, we have
retained exclusive development and commercialization rights for ‘424 for
hematology and oncology indications in the US, while Novartis has assumed
responsibility for the compound in hematology-oncology indications outside
of the US. Through this alliance, we have already received $210 million in up-
front and milestone payments and may receive over $1 billion in additional
payments as well as potential tiered, double-digit royalties on future ex-US
sales of ‘424.

With this alliance now in place, we can accelerate our efforts to develop ‘424
in multiple indications. This year, in addition to progressing ‘424 in PV and
ET, we plan to evaluate ‘424 in children with leukemia, other hematological
malignancies and solid tumors in collaboration with the Children’s Oncology
Group of the National Cancer Institute. Other possible indications that we
may pursue include acute myeloid leukemia as well as other hematological
malignancies and possibly solid tumors.

Our collaboration with Novartis also includes our oral c-MET inhibitor,
INCB28060 (‘060), for various cancers. Novartis will assume responsibility for
worldwide development of ‘060 following completion of a Phase I/II study
already under way. We have retained a co-development and co-promotion
option and will receive royalties on any potential future sales of ‘060.

Our alliance with Lilly, a global pharmaceutical company with a commitment
to expand its presence in inflammation, is for worldwide rights to develop
and commercialize ‘050 as an oral treatment for inflammatory and
autoimmune diseases. In exchange, we have received an initial payment
of $90 million and are eligible to receive up to $665 million in additional

“By successfully completing our equity and convertible senior note
offering in 2009, we strengthened our balance sheet and removed
a significant financial overhang from the Company. Additionally,
with the completion of two collaborative agreements in the fourth
quarter, we are in a strong position to advance our pipeline and
prepare for the potential launch of INCB18424 in myelofibrosis.”

Dave Hastings, Executive Vice President and Chief Financial Officer, Incyte

potential development, regulatory, and commercialization milestones, as
well as tiered, double-digit royalty payments on future global sales with rates
ranging up to twenty percent if a product is successfully commercialized. We
also hold a co-development option that can be exercised at the initiation
of Phase IIb clinical testing on a compound-by-compound and indication-by-
indication basis. If we elect to exercise our co-development option, we will
fund 30% of all future global development costs through regulatory approval
and would receive an incremental royalty rate increase ranging up to the
high twenties on potential future global sales.

Because we see a potential place for ‘050 in treating not only rheumatoid
arthritis, but also multiple other inflammatory conditions including
inflammatory bowel disease, psoriasis and vertebral-joint diseases known
as spondyloarthropathies, we view the co-development option we received
as an important mechanism for building shareholder value.

Drug discovery: Sustaining a core competency

Notwithstanding the focus on our JAK inhibitors and despite the financial
challenges of 2009, we have retained our core competency in drug
discovery. This year we expect to advance into human testing our IDO
(indoleamine 2,3-dioxygenase) inhibitor for solid tumors and select a second
compound for a new oncology target. These compounds follow others that
have already progressed into Phase II including our sheddase inhibitor,
INCB7839, for breast cancer, our 11ß-HSD1 inhibitor, INCB13739, for type
2 diabetes and topical INCB18424 for psoriasis.

A new capital structure: Financing the future

In 2009, we increased our cash position and financial “runway” and ended
the year with pro forma cash, cash equivalents, and marketable securities
of $465 million, including the impact of the February 2010 redemption of
our remaining 3½% convertible senior and subordinated notes due in 2011.
This improved capital structure was the result of a public offering of common
stock and a private placement of new convertible senior notes with net
proceeds of over $500 million.

“As the first JAK inhibitor to enter clinical trials in MF, ‘424 is currently
well ahead of other JAK inhibitor compounds in development.
As important as our first-to-market position could be, the clinical
benefits seen with ‘424 suggest that the compound could also
become the standard-of-care -- first in MF and later in PV and ET.”

Pat Andrews, Executive Vice President and Chief Commercial Officer, Incyte

Our 2010 agenda: Sustaining Incyte’s momentum

Some of our key goals in 2010 include:

• complete the Phase III trials of ‘424 in MF and, with positive results,
prepare a New Drug Application for submission to the Food and Drug
Administration (FDA);

• broaden the indications for ‘424, first in PV, then ET, once we have
reached an understanding with regulators on the best path forward;

• initiate the pediatric trial of ‘424 with the Children’s Oncology Group;

• finish the current Phase II trial of ‘050 in rheumatoid arthritis and decide
whether to exercise our co-development option in a Phase IIb trial
with Lilly;

• conduct the Phase I/II trial of ‘060 in cancer and transfer the program
to Novartis for continued development;

• conclude the Phase II trial of INCB7839 in breast cancer in preparation
for discussing registration requirements with the FDA;

• advance both the IDO inhibitor and a second new compound for cancer
into human testing; and,

• build and invest in marketing and medical affairs to ensure a rapid and
successful launch of our first product.

In closing, I want to thank our employees for their achievements in 2009,
which continue to be distinguished by rigorous science, effective teamwork
and disciplined program execution. Their productivity and competence give
me confidence we can deliver significant and sustainable shareholder value
in 2010 and in future years.

Sincerely,

Paul A. Friedman, M.D.
President and Chief Executive Officer
April 2010