Incyte Genomics, Inc.

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Incyte Genomics, Inc.

3160 Porter Drive
Palo Alto, California 94304
U.S.A.
Telephone: (650) 855-0555
Fax: (650) 855-0572
Web site: http://www.incyte.com

Public Company
Incorporated: 1991 as Incyte Pharmaceuticals, Inc.
Employees: 585
Sales: $219.3 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: INCY
NAIC: 541710 Research and Development in the Physical, Engineering, and Life Sciences

Founded in 1991 and based in Palo Alto, California, Incyte Genomics, Inc. (formerly Incyte Pharmaceuticals, Inc.) provides genomics information to the biotechnology and pharmaceutical industries. Incyte is best known for its original product, LifeSeq, a database which provides a complete and comprehensive view of the human genome. Beyond LifeSeq, Incyte continues to develop and market an integrated platform of genomic databases and technologies, in the service of facilitating the scientific community’s understanding of the molecular underpinnings of disease, and the discovery and development of new therapeutic drugs. Incyte also holds an extensive commercial portfolio of U.S.-issued patents for full-length human genes and the proteins they encode.

Born to Lead: 1991-93

Incyte Genomics, Inc. was incorporated in April 1991 under the name Incyte Pharmaceuticals. The company was created by Schroder Venture Advisers, Inc., a New York venture capital firm, in order to buy assets and technology from a then-liquidating St. Louis biotechnology company called Invitron Corporation. Roy A. Whitfield, formerly the president of Invitron’s subsidiary, Ideon, became CEO of Incyte; Randall W. Scott, one of Invitron’s founding scientists, became Incyte’s president and chief scientific officer.

From its inception, Incyte was a pioneer in the emerging science of genomics, the study of the structure and function of the genetic material that makes up an organism. Incyte’s vision—and the scientific and business promise of genomics—was that new genomic technologies, especially the development of high-throughput computer-aided gene sequencing, would assist researchers and pharmaceutical companies in their quest to understand and define the molecular underpinnings of disease; greater understanding of the relationship between genetic material and disease would in turn lead to innovative therapeutic applications, especially the discovery and development of new, more effective—and highly lucrative—drugs.

Incyte was the first of the genome science companies to go public. The company made its initial public offering on November 4, 1993, selling 2.3 million common shares at $7.50 on the American Stock Exchange under the ticker symbol IPI. The company would later trade on the NASDAQ under the ticker symbol INCY. The net proceeds of the offering were funneled back into research and development, particularly for the expansion of Incyte’s high-throughput gene sequencing and analysis program.

Building and Marketing a Computerized Genetic Encyclopedia in the Mid-1990s

Incyte’s first major project was to use its high-throughput gene sequencing and analysis technology to create the world’s most extensive and comprehensive “genetic encyclopedia”—a database called LifeSeq, which the company billed as the Gray’s Anatomy of the 21st century, a tool that promised to revolutionize the pharmaceutical industry’s research, drug development, and the whole spectrum of processes involved in the diagnosis and treatment of disease. LifeSeq featured two primary tools: a DNA Sequence database and a Gene Expression database. The sequence database mapped the sequences or arrangement of DNA structures, and the expression database analyzed and annotated these sequences, classifying them according to probable function and the cells and tissues in which they were found or “expressed.”

During the mid-1990s, Incyte successfully marketed its ever growing database and analytic tools to many of the top pharmaceutical companies. Sales took the form of yearly subscriptions that allowed companies access to LifeSeq. Payments were made by funding further Incyte research and development or by purchasing shares of Incyte common stock. The LifeSeq database proved valuable to subscribers for a wide range of pharmaceutical and diagnostic purposes: for example, subscribers used Incyte’s product to study the processes, pathways, and resistance patterns of particular diseases on human tissue; study the effect of a new drug on human tissue; and search for human analogs to promising animal tissues.

Incyte’s first major subscriber was New York-based pharmaceutical giant Pfizer. The agreement, valued at $24.8 million, was forged in June 1994. Incyte sold subscriptions on a nonexclusive basis, with the goal of making LifeSeq available to as many companies as possible. By January 1996, Incyte’s roster of subscribers included Johnson and Johnson, Abbott Laboratories, Hoechst AG, Novo Nordisk A/S, Pfizer, and Pharmacia & Upjohn, Inc. These subscribers, representing 12 percent of the top 50 pharmaceutical companies (as measured by research and development spending) supplied Incyte with an aggregate of at least $100 million for further development of its database technologies. In turn, Incyte worked closely with these pharmaceutical partners to continue to upgrade the design and features of its products to best meet the needs of the scientists who used it.

Initially, the Incyte database contained only the company’s own proprietary data. In May 1996, a new version of the database was released. It included public-domain gene sequence data that had been processed through Incyte’s bioanalysis software. With this valuable addition, scientists could, for the first time, study publicly available sequence data alongside the proprietary sequences.

As Incyte continued to gather information about thousands of genes—using sophisticated instruments to extract DNA from cells and then decipher its chemical code—it applied for patents on the genes that it discovered. Eventually, Incyte offered LifeSeq Public as a free database with unrestricted access to information about genes within the public domain. Incyte’s proprietary human gene sequence database, to which it sold subscriptions, was then called LifeSeq Gold. This database featured transcripts of 120,000 genes, more than half of which were proprietary to Incyte, such that scientists could not access information about these genes from any other commercial source. By 2000, Incyte’s subscribers would include more than 20 of the top pharmaceutical companies in the world.

Acquisitions and Strategic Partnerships in the Late 1990s

In the late 1990s, the race to complete the map, or sequencing, of the human genome was coming to a close. A company called Celera Genomics Group was in tight competition with the U.S. Department of Energy’s publicly funded Human Genome Project, based out of the Washington University medical center in St. Louis, Missouri. Analysts speculated that, as human genome data became more readily available to the scientific community over the next few years, Incyte would have increasing difficulty finding and keeping subscribers to its LifeSeq database. In order to maintain its position as an industry leader, Incyte needed to further diversify and specialize its products and expertise and continually expand its network of partnerships in order to leverage the power of its technology and intellectual property assets.

In 1996, in an effort to generate new revenues, Incyte acquired a St. Louis company called Genome Systems for about $8 million in stock. Genome Systems was founded in 1992, the brainchild of two Washington University scientists who recognized the growing need to industrialize the process of finding, storing, and shipping gene fragments to thousands of scientists and researchers worldwide. Referred to as a “gene depot” or “clone warehouse,” the facility in St. Louis contained 100 industrial freezers, each housing half a million DNA clones stored in their own individual test tubes. The warehouse supplied the genetic material of all kinds of organisms, including mice, fish, rats, dogs, soy plants, and bacteria—as well as humans. Scientists at universities, government institutions, or private companies could purchase individual DNA clones for as little as $22 for a common gene fragment or up to several thousand dollars for a critical, full-length gene. Incyte had only one real competitor in the business of large-scale custom genomics, a company called Invitrogen. The Genome Systems subsidiary brought in significant revenues for several years, but its other real value to Incyte was in giving the company the means to clone its own genes for research, thereby freeing the company of its dependence on other commercially available products. Incyte officials believed that this self-reliance was critical to staying ahead of the competition.

In September 1997, Incyte joined forces with SmithKline Beecham to launch a new company called Diadexus, based in Santa Clara, California. Through a joint, $25 million investment in Diadexus, the two companies collaborated on the development and production of new, gene-based diagnostic products. The alliance was indicative of the desire of both companies to stake out competitive territory in the fast-growing field of pharmacogenomics. In this specialized area, research focused on using a patient’s personal genetic information to tailor both diagnosis and treatment to the individual for maximum effectiveness of prescribed drugs with minimum adverse side effects.

Company Perspectives:

Grasping the “Business of Genomics “means we possess not just the scientific data to accelerate your discovery, but the full range of resources, policies, alliances, and support to help customers succeed, today and for years to come. This core business philosophy has been the basis for building a strong IP portfolio, the world’s most extensive databases of novel content, flexible terms and conditions, leading-edge technology as well as a rapidly expanding list of products and services that are designed to take research to the next level What makes Incyte unique is its ability to offer both a comprehensive suite of products and the peace of mind that comes from doing business with a proven leader. In the field of genomics, no other organization comes close to offering such a complete package.

Indeed, as the field of genomics continued to mature, increasing attention became focused on genetic variations, minute differences between similar genes, known as single nucleotide polymorphisms (or SNPs), which were thought to be significant factors in identifying individual disease susceptibility and response to drug treatment.

In August 1998, in response to increasing industry enthusiasm to create a database of SNPs, Incyte purchased a privately owned British biotechnology company called Hexagen for $41 million to form the cornerstone of a new subsidiary division called Incyte Genetics, which would market software and data for the specialized area of genetic variations. Incyte acquired Hexagen primarily for the company’s signature technology, which provided for the rapid identification of differences in DNA sequences from one individual to the next. Incyte predicted that its new division would not generate a profit until 2002, so it made the prudent decision to issue separate common stock for Incyte Genetics, so as not to cause preexisting investors any anxiety about earnings.

For eight quarters in 1997 and 1998, Incyte had distinguished itself as one of the very few genomics companies to generate a profit. Annual fees for subscriptions to its database accounted for most of Incyte’s revenue during this time, with sales from its custom genomics business totaling nearly a quarter of yearly earnings. Profits fell off after 1998, though, as Incyte invested heavily in gene-discovery equipment to enhance its proprietary database, and generally began to shift the focus of its business.

Mining the Proteomefor Profit: 2000-2002

In March 2000, Incyte Pharmaceuticals changed its name and the name of its subsidiaries to Incyte Genomics, Inc., a move designed to more accurately communicate the company’s commitment to providing genomic information on a nonexclusive basis to biotechnology, pharmaceutical, and academic researchers worldwide.

At the same time, as part of a yearlong effort to greatly expand its customer base, Incyte launched its web site, Incyte.com, and with it, the beginning of its e-commerce genomics program, known as LifeSeq GENE-BY-GENE. Whereas the price of a full subscription to the Incyte database was prohibitively expensive for smaller companies and individual researchers, with this new offering, information about every gene in Incyte’s database became equally accessible and affordable to institutions, companies, and researchers of every caliber. With the new web site, any scientist with Internet access could submit a confidential query about a specific gene of interest: the initial “best view” of the gene sequence was available for free; additional gene sequence information about that gene, as well as a physical copy of the gene, could be purchased via e-mail.

In the spring of 2000, Celera Genomics and the Human Genome Project announced their respective triumphs in completing the map of the human genome, and the first race of the genomics revolution was over. But while sequencing the genome represented a monumental accomplishment, scientists acknowledged that this was only the tip of the iceberg—for scientific understanding as well as business success. The next step was to determine the function—and dysfunction—of genes, to attribute to specific genes and gene variations a role in the onset and development of disease, and/or a role in responding to drug treatments. To do this, scientists turned their attention to proteins. Most genes act as instruction manuals for the production of proteins, and it is the proteins that do the work within living cells, and change when a normal cell becomes diseased.

The new frontier—mining the proteome, the set of human proteins—was called proteomics. Proteomics required new, more sophisticated technologies for analyzing proteins, as well as for handling the massive quantities of data that such analysis yielded. The real rewards of proteomics, however, were greater, as progress in this area greatly improved the accuracy and efficiency of the drug development process and in so doing opened the door to mega-profits.

Once again, the nimble and innovative Incyte managed to keep itself at the forefront of the industry. In December 2000, it acquired a privately held, Beverly, Massachusetts company called Proteome, Inc. Proteome had developed its own database, called the BioKnowledge Library, to provide researchers with information about gene and protein function. The two companies attested that with their combined technologies, they would be peerless in their ability to provide the scientific community with cutting edge protein annotation for the genome.

In 2001, Incyte forged another strategic alliance with a company called Lexicon Genetics Incorporated, whose own database, Lex Vision specialized in gene function information. The two companies agreed offer access to each other’s databases, as well as to collaborate in the arena of therapeutic protein drug discovery. Here again, Incyte had found a way to extract new utility from its existing database and locate new revenue opportunities.

Key Dates:

1991:: Incyte Pharmaceuticals, Inc. is incorporated in Delaware to buy certain assets and technology from Invitron, a St. Louis-based biotechnology company then in liquidation.
1993:: Incyte Pharmaceuticals, Inc. makes its first public offering.
1996:: Incyte enters the niche business of custom genomics by acquiring Genome Systems, a gene distribution center in St. Louis, Missouri.
2000:: Incyte launches its web site, Incyte.com, and its first e-commerce genomics program, LifeSeq GENE-BY-GENE; company changes its name to Incyte Genomics, Inc.
2001 :: Incyte announces a major restructuring and appoints both a new CEO and a new president/chief scientific officer.

By the end of the third quarter of 2001, Incyte announced plans to undergo a major restructuring. The company discontinued its custom genomics business, laying off 400 workers due to flagging profits and the perception that these non-core product lines were no longer contributing to the company’s overall competitive advantage. The elimination of this niche endeavor allowed the company to concentrate its resources more fully on its core database, intellectual property, and partnership businesses, toward an aggressive shift into the most lucrative area of the industry: drug making. To this end, Incyte signed key agreements with two pharmaceutical companies, Genentech and Medarex, to collaborate on drug development.

Also in 2001 Incyte named a new CEO, Paul A. Friedman, and a new president and chief scientific officer, Robert Stein, both former top executives at Dupont. Roy A. Whitfield stayed on as chairman of Incyte’s board of directors. On the heels of these appointments, Incyte also recruited a number of other experienced pharmaceuical executives to its senior scientific staff, as well as 30 scientists with extensive experience in drug discovery. These measures were all aimed at bolstering Incyte’s internal capabilities in the arena of therapeutic discovery and development.

Early in 2002, Incyte and partner Iconix Pharmaceuticals released a new commercial research tool, DrugMatrix. Heralded as a significant advance in chemogenomics—an emerging field that examined the interactions between chemicals and the genome—DrugMatrix brought together the previously discrete fields of genomics, chemistry, toxicology, and pharmacology in a new, highly integrated environment to aid in the acceleration of drug discovery. Once again, Incyte was finding new ways to leverage and profit from its existing information business assets, and at once to harness other companies’ assets to further its own internal projects.

While Incyte reported a decrease in total revenues for the second quarter of 2002 (largely associated with the loss of revenues from its discontinued custom genomics business), the company was holding fast to its strategy to manage its information product line to be cash-positive, and to devote these revenues as much as possible to its drug discovery and development initiatives.