英賽德 (INCY) 2005 Q3 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Incyte Corporation third-quarter 2005 financial results conference call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. It is now my pleasure to introduce your host, Ms. Pam Murphy. Ma'am, the floor is yours.

Good morning and thank you for joining us. With me today are Paul Friedman, Incyte's President and Chief Executive Officer; Dave Hastings, Incyte's Executive Vice President and Chief Financial Officer and Rich Levy, our Senior Vice President of Drug Development.

We will begin today's call with an update from Paul regarding recent progress in our lead drug discovery and development program. Reverset, which we will now refer to as dexelvucitabine, or DFC; our CCR2 antagonist, INCB 3284; and our sheddase inhibitor, INCB 7839. Dave will follow with a brief overview of Incyte's third quarter financial results that were described in full in our press release issued earlier this morning. We will then open up the call for Q&A.

Before beginning, I would like to remind you that some of the statements made during the call today, including statements regarding our plans and expectations for our drug discovery and development program and our financial guidance, are forward-looking statements. These forward-looking statements are subject a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our most recent 10-Q for the quarter ended June 30, 2005 and from time to time in our SEC reports. Now I would like to introduce Paul Friedman.

Thanks, Pam. Good morning everyone. I will begin with a brief update on dexelvucitabine, which I will refer to as DFC, because it's a lot easier to say that. We covered most of the DFC news in our conference call on the 28th of September, at which point we reported that the FDA requested that we conduct another Phase IIb trial before initiating our Phase III program.

Essentially they want us to confirm the positive results we generated in our subgroup analyses of Study 203, but in a planned prospective manner. Despite strong statistical trends for arms containing DFC, the FDA was concerned that the subgroup analyses in Study 203 were neither prospectively specified nor large enough to support immediate progression into Phase III. As you may recall, the key subgroups we identified in particular, included patients taking 200 milligrams of DFC without 3TC or FTC after being compared to the subgroup of patients not taking FTC, but receiving either 3TC or FTC.

The agency also wanted to see an expansion of our safety database with DFC alone; that is, in the absence of DDI, as well as longer-term safety data prior to the initiation of the larger Phase III program. I am encouraged that in the open-label extension trial, Study 901, DFC when used without DDI continues to look generally safe and well-tolerated. There have not been any cases of clinical pancreatitis and the rate of asymptomatic grade IV hyperlipasemia does not increase with long-term use.

We are in the process of finalizing the Phase IIb protocol with the FDA so that trial can begin as soon as possible, either late this year or quite early in 2006. We anticipate that this study will look similar to our original Phase III trial design. In fact, we're pretty sure that's what it's going to look like. I expect it will be a two-arm trial, about the same size as Study 203 in which we will do a head-to-head comparison of DFC to 3TC on top of optimized background therapy. The FDA has indicated to us that if the results of this second prospective Phase IIb trial are positive, that only one additional Phase III trial could be required for registration.

And while the need to conduct this additional study could cause a delay of 12 to 18 months, we're going to work aggressively to keep this delay as close to 12 months as possible. We remain very committed to the development and commercialization of DFC. To briefly remind you, the commitment is based on the observations that DFC has a unique resistance profile and that the data from Study 203 strongly suggested that DFC is a very potent NRTI when used without 3TC or FTC. In fact, DFC provided a sustained greater than one-log (ph) drop when it was used without 3TC or FTC in patients who didn't optimize their treatment regimens.

As a comparison, with comparable patients and timelines, Viriad (ph) provided about a 0.6 log drop.

Moving to our CCR2 program, the two Phase IIa trials are progressing well. The rheumatoid arthritis study involves 48 patients, two-thirds on Incyte 3284 and one-third on placebo, so a 2-to-1 randomization. All of the patients are taking methotrexate but still have active disease. The study is fully enrolled and we expect to have topline results from this trial by year-end.

The second study involves 120 obese insulin-resistant patients. In this case, it's a 3-to-2 ratio of patients receiving either active treatment with 3284 or placebo. For this study, we expect the topline results to be available late in the first quarter of next year.

While we are primarily looking at safety and tolerability in both of these 28-day trials, we are also looking at certain efficacy measures. In the rheumatoid arthritis trial, we are looking at ACR scores, as well as markers of inflammation, such as C-reactive protein and erythrocyte sedimentation rates; that is, CRP and ESR. Given the nature of RA and the fact that we don't know how long we need to block macrophage recruitment in order to see meaningful clinical outcomes in patients, it is possible we need to dose for longer than one month before we see significant evidence of efficacy.

In the obese insulin-resistance trial, the primary efficacy endpoint is changed from baseline in patients' insulin sensitivity as measured by oral glucose tolerance test and in a subset of patients, a hyperinsulinemic euglycemic clamp procedure, which tends to be a more sophisticated and sensitive measure of glucose tolerance and insulin sensitivity. If the safety of Incyte 3284 is adequate in the 28-day studies, we plan to initiate a six-month trial in rheumatoid arthritis and possibly a second study in multiple sclerosis early next year. We plan on conducting interim analyses at three months in each of these planned studies.

Moving to Incyte 7839, our oral sheddase inhibitor, we initiated Phase I testing in healthy volunteers in April and we completed two dose ranging trials which support progression into patients and demonstrate suitable PK -- pharmacokinetics -- for twice-daily dosing. In October, we began an open-labeled dose escalation Phase I/II study in cancer patients with solid tumors and we expect to include patients with non-small cell lung, hormone refractory prostate, colorectal, breast and head and neck cancers. These will be patients who are refractory to standard treatment and for which no effective treatment exists. The objective of the trial is to establish the appropriate dose for Incyte 7839 and then, in mid-2006, to move into one or more Phase II trials in combination with other approved drugs such as Tarceva and possibly Herceptin.

I will include my remarks with a brief description of our earlier discovery programs. We have completed pre-clinical toxicology studies for an internally-developed HIV compound? That compound, Incyte 9471, is a proprietary oral CCR5 antagonist, and in addition to having very potent anti-HIV activity and cell culture, has excellent pharmacokinetic properties. Like the other CCR5 antagonists in development, 9471 is active in cell culture against viruses resistant to non-nucleocide reverse-trancriptase inhibitors, nucleocide reverse-trancriptase ACE inhibitors and protease inhibitors. We are scaling up this compound and preparing the IND and expect to initiate Phase I trials in the first half of 2006.

In addition, we have selected a compound as a potential treatment for diabetes that is now in formal preclinical safety testing and is distinct from our CCR2 antagonist. Assuming this compound makes it through preclinical safety, we will describe it and its target sometime in either late this year or early in 2006.

I believe we have made a great deal of progress this year in both expanding and advancing our pipeline. We have developed three proprietary compounds that are now in or ready for clinical testing in three major indications -- inflammation, cancer and HIV -- each with a potential to become a significant new drug. The DFC delay was a disappointment, but it has not diminished our enthusiasm for this very potent HIV therapy or for developing other HIV therapies, such as 9471, our CCR5 drug candidate. Our CCR2 program is on track to move into larger efficacy trials next year, as is our sheddase inhibitor program in cancer. So I expect that we will have quite a bit of news to report in 2006 from each of these programs.

And with that, I will turn the call over to Dave Hastings, our CFO.

Thank you, Paul, and good morning everybody. As usual, I will begin this morning by reviewing the Company's cash position. Our ending cash balance at September 30, 2005 was approximately 364 million as compared to our ending cash at December 31, 2004 of 469.8 million. Our cash used thus far in 2005 has been approximately 75.7 million. In addition, we have used approximately 35.8 million in cash to repurchase and retire our 5.5% convertible subordinated notes which have reduced the principal balance of those notes to 91.6 million. This use of cash was partially offset by the sale of a strategic investment in the amount of 5.7 million.

Importantly, we are reducing our cash use guidance this year from a range of 120 to 130 million to a range of 100 to 105 million. This reduction of cash use is the result of several factors, but the predominant driver is lower spending on R&D primarily due to the FDA's recent decision regarding DFC. Other contributing factors to our reduction in cash burn are higher-than-expected revenue, lower spending on SG&A and interest expense and higher yields on our investment portfolio. It is important to note that our cash guidance does not include any cash that may be used for additional repurchases of our 5.5% convertible subordinated notes, any possible in-license or purchase of products in the clinical development or any activity in connection with our strategic investment portfolio.

In addition, due to the higher average cash balances and higher yields on our investment portfolio, we're increasing our interest income guidance from 7 to 8 million, to 9 to 10 million.

The other area I would like to highlight today is our operating expenses. Our R&D expense was 27.4 million for the quarter and 71.7 million for the nine months ended September 30, 2005. For reasons previously discussed, we are lowering our 2005 R&D expense guidance from a range of 98 to 102 million to a range of 90 to 95 million. As a reminder, our R&D expense can vary from quarter to quarter primarily due to the timing of our clinical development expenditures.

Our selling, general and administrative expenses were 2.7 million for the quarter and 8.2 million for the nine months ended September 30, 2005. Due to our continued focus on minimizing our spend in the SG&A area, we are reducing our 2005 expense guidance from a range of 12 to 14 million to a range of 11 to 12 million.

I would like to conclude my remarks today by saying that we continue to focus on using our capital carefully and effectively as we continue to build value in our discovery and development pipeline. Pam?

Operator, can we now open up the call for questions and answers please?

(Operator Instructions). Thomas Wei, Piper Jaffray.

Thanks very much, I had a couple of questions; the first on the extension study for dexelvucitabine. Can you clarify the comment that was made around the rate of the elevated pancreatic enzymes not having increased with increasing duration of dosing? Does that mean there have been no additional cases of hyperlipasemia in the extended follow-up beyond what we already know, or does that mean that it just looks unchanged when you look at it on a per-patient month or per-patient year adjusted basis?

I'm going to let Rich give you the details on that. We have seen other people who have had hyperlipasemia, but the rate of incidence has gone down substantially so that what you're not seeing is like a linear increase in incidents of pancreatitis. Rich, you want to elaborate?

Sure. So in the 203 study, when you look at patients who got either 100 or 200 milligrams for the 24-week study, the incidence of Grade IV hyperlipasemia was about 5%. Then those patients as well as patients who were originally on placebo, patients who were on 50 milligrams, they go into the 901 study where everybody gets either 100 or 200 milligrams; and in fact, about two-thirds of the patients have been getting 200 milligrams. And in that study where you have about 15% of the patients have been on drug for more than a year and more than half have been on drug for nine months, of the 100 -- approximately 100 patients who are on drug on that study and who were not receiving DDI, the incidence of Grade IV hyperlipasemia has been 2%. So you cannot just add that 2% to the 5% because it's a different group of people. So if anything, the rate of hyperlipasemia with longer-term use appears to be no higher or possibly lower than we saw in Study 203, but that's not to say that no one has developed a Grade IV lipase.

So it sounds like there have been two additional cases of the 100 patients who are in the expansion study and not on DDI?

That's correct.

And can you just give us a little bit of detail around those cases? Those are Grade IV cases, and when did they emerge?

So, I don't remember off-hand exactly when they emerged. I think that, the best of my recollection, one was after about seven months on therapy and one was after about eight months on therapy. Both were completely asymptomatic, as has been the case for all of the patients who have developed Grade IV lipase in the absence of DDI.

And in the protocols, are those patients withdrawn from the study?

If they develop Grade IV lipase, they are withdrawn from the study.

And the hyperlipasemia resolved after drug withdrawal?

Yes. The hyperlipasemia resolved slowly with this drug and we don't really know why it resolved slowly. But it's not a problem so far that it resolved slowly because they're not symptomatic and they're not unhealthy in any way. But the actual enzyme levels don’t just drop down as soon as you stop the drug. It takes awhile.

I have one question on the CCR5 and I will jump back in the queue. There has been a lot of controversy around the propensity for cross-resistance in this class. Have you been able to explore that at all, your compound versus the Pfizer or Schering compound officially? Or if not, can you at least tell us what degree of structural similarity there is between your series and what's in clinical development right now?

For competitive reasons, we don't want to get into the chemical structure or any relationship to other structures. I think you can understand that. We are in a continuing set of studies in cell culture to evaluate the degree of or lack of degree of resistance. Because you don't have a battery of known resistant viral species like you have with protease inhibitors and non-nukes (ph) and nukes (ph), it's a bit more, a protracted exercise and we are in the midst of it now and it's probably going to be a significant number of months before we are in a position to say much about that.

Alright, thanks very much.

David Witzke, Banc of America Securities.

Good morning. It's actually Mark (indiscernible) for Dave. Thanks for taking the question. I was wondering if you could provide any additional details at this point on what the endpoint for the Phase IIb study is likely to be. Will it be percentage of patients with a one-log drop of 24 weeks, or do you have any thoughts on that?

That's what we believe it will be. And from the discussions that we have had with the FDA, there's no reason to think that it wouldn't be that. Rich, do have anything more to add to that?

No.

So that's the endpoint that we think will be used.

And then, again, on the CCR5 antagonist class, as Thomas alluded to, there have been some setbacks both at Schering and at GSK. Has your enthusiasm for this compound abated at all? Do you think there's any sort of a class effect with respect to the liver tox? I know Schering had some trouble with virus in naive patients. Any additional thoughts on that?

So our development plan from the beginning has not been to go into the naive population, but to go into treatment experience where the drug would be an add-on to whatever optimized background therapy you can come up with. I think the -- there's no evidence that the liver toxicity is a class effect. I think the GSK structure is structurally chemically different than either or Schering or Pfizer or us, by the way. And I think it's unique. Liver is often a target organ, but I think in this case, it seems to be unique in the GSK structure.

The issue in naive patients, I think, and I think until a lot of that data is presented in a public manner, it's going to be hard to know precisely what's going on. But I was pretty confident that if you compared Combivere plus Systiva through a CCR5 antagonist, plus Combivere, that Systiva was going to win. It does not mean that you could not add a CCR5 antagonist to Systiva plus Combivere and hope to get extremely long control in first regimens. That's a difficult study to do because you may have to carry it out for a long period of time. But I don't think the study design that has been stopped was a particularly good study design for showing what CCR5, that mechanism could do.

Alright, thank you.

Sapna Srivastava, Morgan Stanley.

Hi. I have two questions. The first is on your Phase IIb study. Could you explain why you're not extending the site (ph) of the trial (indiscernible) registration (indiscernible)? And the second question is just from a business development strategy. (indiscernible) the multiple areas that you're going into from HIV divertese (ph) cancer. What is the strategy going forward? How do you plan to advance the pipeline?

The first question -- you have to remember now, it's not a four-arm study, it's a two-arm study and I think to try to do a 400 or 500 patient study, Rich can comment more on this, is -- would be flying in the face of what the FDA has asked us to do before going into large Phase III trials. So what we have with the two-arm study that we're anticipating doing is greater than 80% power to detect the difference that we're looking for at the peak (ph) 0.05 level.

And so do you think the 80 to 200 patient study could be considered an additional (ph) trial?

It would require us, if the trial, if the FDA agrees that it's a positive trial, they have indicated to us that we would have to then do one subsequent registration study. That would be a relatively large study with 7 to 800 patients in it, but it would be logistically potentially a lot easier to do than two studies at two sets of different sites, for example.

And the second question please?

The second question is -- we have said from the outset that we were going to emphasize the areas of inflamm (ph) and oncology as we went forward, but that we were going to be opportunistic, especially, if you recalled, the Company was an information company, a genomic information company. We're making a switch to a drug discovery and development company with absolutely no pipeline. And we all know how long it takes to develop your own internal pipeline of oncology and inflammation entities. And with that in mind, we also stated that we were going to look for compounds that we could in-license that were in development that had relatively short tracks to NDAs to generate interest in the Company and to have a pipeline that had entities in the more advanced end of the pipeline. I think that is what we have done. And what we have done so far is to go into the HIV area where we have a significant amount of prior experience.

The other compounds that we have talked about include the CCR2 program, which is inflammation, and sheddase, which is oncology. We've referred in the past to several other earlier oncology programs which are ongoing and we will continue to focus internally on inflammation and on oncology, but we will not be immune to being aggressive and flexible when we find things either that come out of our programs and indicate other therapeutic possibilities or externally if we find in-licensing opportunities that mesh with the rest of our R&D activities.

Thank you.

Eun Yang, Jefferies.

Thanks. I have one more question on the CCR5 antagonist. Recently, there is an article in Major Medicine indicating that blocking CCR5 could make HIV patients more vulnerable or prone to infections such as the flu and curtovirus (ph). And I am just wondering what do you think would be the most challenging part of developing drugs against the CCR5? That's the number one question.

And the second question is on CCR2 antagonist. At least in the animal model, blocking CCR5 is a quite useful diminishing arthritis symptoms in patients with RA, particularly in the early stage of a disease. But in the later stage of the disease, when you block the CCR5, it actually aggravates the symptoms. So I'm just wondering what are your thoughts on developing this drug in the arthritis patients and whether in your current Phase II study, patients have more on the early stage side than later stage of the disease?

You are referring to CCR5?

The second question is referring to CCR2.

But your examples, you said CCR5. Do you mean five or two? When you were talking about the patients -- was that CCR5, because there is no evidence --.

No, there is CCR2 (ph) in the animal studies. The case that I mentioned regarding to CCR2 antagonist is in the animal study list (ph). Some paper just showed that if you block the CCR2 in animals with RA, like a collagen-induced arthritis, actually --.

That's an old paper, we know that paper. We get very good efficacy in both the adjuvant-induced and the collagen-induced arthritis models. Even if you wait until the joints are in the process of being destroyed, which would be very late analogy to the human. Those studies that you're talking about are knockout studies as I recall.

One was a knockout and the other one is actually collagen-induced arthritis in the mouse model.

Yes, but it's in a mouse knockout, or there was an antibody -- I mean in one experiment, there was an antibody used. We found good efficacy across the board in both of those rodent models, so we cannot recapitulate that study. And there are a couple of studies that sit out there all by themselves that no one else has found to be the case. So we'll get information from our Phase II study. This first one and the next one include patients who are relatively early, and then some who are late, and we will see how it comes out.

With respect to CCR5 and patients having the potential to do less well with flu or other viruses, no drugs are perfect. And I don't know how clinically relevant that's going to turn out to be. If that were the only issue that surrounded CCR5 and it was otherwise a good mechanism, that's certainly a manageable issue. And I would think the therapeutic benefit would far outweigh the possibility that you might not do -- you might take a few days longer to get over the flu if you were not vaccinated before-hand. There are ways of dealing with those issues. If you told me that somebody had irreversible aplastic anemia or something like that, I would be more concerned.

And in the Phase IIa study with the CCR2 receptor antagonist, the patients where they're already in the trial, have they been treated with TNFR (ph) blockers?

No, they haven't.

But you're using it in conjunction with methotrexate?

That's right. And what we would be looking for if we were incredibly fortunate to see something like this would be results on top of methotrexate similar to what you would see with the biologics. What we have been saying all along in the program is that in the animal models, this oral aging gives the same level of efficacy that you see with the biologics, and that's what we are hoping to see in the human setting.

Thank you very much.

Maneesh Jain, Thomas Weisel Partners.

Good morning, thank you for taking my questions. Regarding DFC, it sounds like you're planning on meeting with the FDA imminently. So can you give us a feel for, since you've heard of the FDA's concerns, what steps you guys have taken to affect enrollment in the second Phase IIb trial, if and when it opens?

We plan to have some something like 75 centers in the study, which is significantly more than we had in the 203 study, and two have them -- as many of them up and running from day one as is possible, which is also different than the way did 203, which we believe will help us to much more expeditiously recruit the trial. Rich, do you want to add something?

I'll just add that we've had expert meetings with thought leaders and they had no concerns with even the design of the Phase III trial. They were enthusiastic about putting patients into this trial. So I don't think that the FDA’s stance, that they just want us to go a little bit slower in terms of how many patients it's planning put on trial this year as opposed to in a future year, we've slowed down the enrollment rate. I think also as potentially the CCR5s, if Glaxo is potentially out, that potentially opens up even more centers and more people looking for other options than they might have had a month ago.

Okay. And then regarding the hyperlipasemia, it seems as if in the past, some of the patients that had, or maybe even all of the patients that had suffered Grade IV hyperlipasemia, seemed to be heavily pretreated and whom there may have been some subclinical injuries to the pancreas to begin with. Does that still hold true with these two additional cases that you told us about?

Virtually everyone who has been in Study 203 and then went on to Study 901 has failed multiple prior regimens and have taken multiple different drugs along the way. So it's hard to actually make any distinctions between patients as to what they've had. We have no long-term data beyond 10 days actually in naive patients to see whether, if you keep treating the naive patients, whether or not they would ever develop hyperlipasemia.

And then just in regards to the pipeline, it sounds like the CCR2 program is progressing in RA and potentially moving into MS, but you're moving in a different direction regarding diabetes. So I am just curious, what's the potential for out-licensing any of the R&D programs in 2006?

Well just to go into the strategy for the one-month studies of CCR2, of all of the indications, the potential indications that we've talked about, and there are lots of other ones for this particular mechanism, but we only had safety, preclinical animal safety, that would allow us to do one-month studies. We now have six-month safety. So we can now be more picky about the indications that we go for in the longer-term studies. But in the one month studies, the only two areas where we thought we had a chance of showing anything were RA and possibly diabetes. But diabetes is by far the flyer in the group. And as you see in the three- to six-month studies, the two areas that we are going to concentrate on are doing an expanded RA study and quite likely an MS study, as opposed to continuing with either diabetes or starting an akros (ph) study or a psoriasis study or inflammatory bowel disease study.

So as we've said before, because of the breadth of the program and the fact that it is a competitive program, we do need a partner. Now we -- and we said we have been talking to people. We would look to license that program at a point in time where it made the most sense to us. And there are details there that I'm not prepared to share publicly as to whether it makes sense to do it today, it makes sense to do it after the second quarter in '06 or toward the end of '06. But sometime in that timeframe, we would be looking to partner the program.

The other programs currently on our plate are ones that -- the two that are in development, the sheddase program, the CCR5 programs, are ones that we could take ourselves through or we could partner. And, again, it's too early to know what we would do with either of those programs. If the preclinical program in diabetes that I spoke to you about were to progress, that program would be partnered after a Phase IIa proof of principle. And that's kind of -- I think that runs the current pipeline of things that I can talk about.

Thank you so much.

Han Li, Suntrust.

A question for Paul or Rich, this is regarding Study 901. Can you remind us the (indiscernible) the extension study, how many patients in the study now and which dose of DFC are those patients on? And will I see data updated from time to time?

So neither one is basically for people who successfully complete Study 203 and who are getting some benefit from the drug in the view of the investigator. So in total of the 198 patients who actually started on drug or placebo in Study 203, 126 went into Study 901. Of those 126, about 25 of them were on DDI at some point in time. So that's why earlier when I said there was about 100 patients of which two had gotten Grade IV lipase, those were excluding the 25 patients who had been on DDI. Although we don't use DDI with DFC any more in any of those patients, but a lot of them came in on DDI until we stopped that.

As of right now, the trial is -- you have the option of either using 100 milligrams of DFC a day or 200 milligrams a day. And the cost of the efficacy data that we talked about over the last couple of months showing that 200 milligrams is the most effective dose and be the only dose that we would be taking forward, we're in the process of getting amendments through to have all patients be on the 200 milligram dose going forward. So that's pretty much -- and people can use whatever background therapies they want. It's largely a study about safety, it's not a comparative study. It's a way of selecting long-term safety data and also continuing to provide a drug that's benefiting patients after they've completed the first trial.

So it should be 125 or 126 patients, there will be DFC at 200 mgs (ph) pretty soon, and there will be no DDI?

There is no DDI now any more. There are not 126 patients still in the study -- that's the number that went in. There are a few who have dropped out of the study, including the two patients who developed Grade IV lipase. So it won't necessarily be 126 patients who get 200, but it will be somewhere in that range. And I didn't neglect to answer the first part of your question as to whether or not there will be updates on this study, and the answer is yes. We just haven't decided which meeting would be the best place for the next time to talk about actual results in that study yet.

How long you will follow those patients?

The plan is for this study to keep going until the drug is on the market. So these patients will be on drug for a long time.

Thanks. The other question I have is more on the financial side, more for Dave. This is on the interest income guidance. You gave 9 to 10 million for the year. Please correct me if I'm wrong, but don't you already have 10.3 million in interest income up to now to this quarter? Does it mean that you're going to have a zero interest income in the fourth quarter?

Included in that amount through the nine months, Han, is $2.8 million of a onetime gain from the sale of our strategic investment. You have to back that out to look at sort of the natural interest income for the nine months ended.

I see. And second question, on your '07 converge (ph), you still have a remaining balance of close to 91 million. Do you have any plans regarding the '07 conversion?

Yes. I think -- look, cash is probably our most strategic asset, so what we do is very carefully balance investing in our pipeline and improving our capital structure. And over time, we will continue to do both.

Okay, thank you.

Alex Hittle, A.G. Edwards.

Thank you, good morning. I have a couple of questions on the diabetes front here. First of all, on the CCR2, you've spoken about that and it wasn't clear to me whether your decision to sort of keep this on the shelf it appears going forward is a data-driven decision or a strategic decision. And then second, as I recall in the Maxia acquisition, there were two insulin sensitizers; one at J&J and one internal. And I'm wondering if you could update us on where those stand and whether or not the internal one is the one that is progressing here in the late preclinical?

It's not the Maxia compound, it's a different mechanism. And it's really J&J's prerogative to tell us where, publicly where that program stands, so we cannot comment on that. CCR2, what we wanted to do was to take a look at what would be a very novel way of treating diabetes and to see if we saw any inkling of efficacy in the one-month study, and then not to pursue that internally because we felt that RA and MS were more appropriate for us, but have it there as a completed study as part of a package that we would use to attract somebody to license the program.

Thank you.

Vinny Jindal, Wedbush Morgan Securities.

Hi, good morning guys. A couple of questions on the kind of earlier stuff in your pipeline, first on sheddase. You guys had mentioned doing later trials that would look at sheddase in combination with other drugs that are either at standards of care or emerging as standards of care. What are your thoughts on any solid tumor trials with the sheddase inhibitor, including Avastin? Where do you think that drug fits into the clinical development strategy?

So from a mechanistic perspective and from preclinical data, there are reasons to believe that our drug is synergistic with both Tarceva and VGFR-1-driven tumors and in Herceptin and in percute (ph) driven tumors. That's not to say that our drug doesn't have activity without those; in fact, it does. We have not done any preclinical models with Avastin per se, although I don't see any reason why you would expect that they wouldn't work well together.

At this point, it's a matter of first getting through the first Phase I/II study to see what we have, and then we would not necessarily next year going to start every conceivable study we have to choose among a couple of designs. But I think that the possibility that this could be used with any other drugs right now seems quite realistic and I would not rule anything out.

Okay. And on the CCR2 program, I know that you guys have multiple different molecules in that program, multiple different starting structures to build off of, and that some of your partnering strategy involves licensing out different chemical entities for different indications possibly. Are you going to be using the same molecule you used in the first Phase II's in RA and insulin diabetes indications into the next Phase II's, the RA and MS? Is it the same molecule in all four trials, or are you looking at various -- variations of those molecules at all for partnering potential?

I think it would be difficult to partner chemical entities for different indications. I think it may be possible to partner the program and retain indications. And in that kind of scenario, I would guess that we would probably have to use a molecule different than the current lead molecule. Our plan for MS and RA is to move ahead with the lead molecule 3284. And at some point, someone, us or a partner for the more primary care type indications -- diabetes, atherosclerosis -- would I would think use one of the other scaffolds to have a different molecules for those indications, or molecules.

Okay. And then one last question on the CCR5. Some of the toxicity of other compounds seem to have been due to some promiscuity of inhibition just generally inhibiting GPCR (ph). Does your molecule hit more directly the domain that's the business end for HIV entry, or is it kind of GPCR promiscuous or CCR5 generally promiscuous?

It's -- we believe from all of the data that we have, it's pretty specific for the HIV binding site. And in the extensive screening that we have done, it's very selective. So it's not going to be promiscuous on GPCR's.

Got it, thanks guys.

Soham Pandya, Susquehanna Financial Group.

Thank you for taking my question. Most of my questions have been asked, but a follow-up. You mentioned that sort of a 2% rate of hyperlipasemia in the safety (indiscernible) trial. What is your sense, what level is sort of acceptable in this sort of patient population for -- from a commercial standpoint? What level would be worrisome to you folks?

So if you look at it -- let's look at it -- first of all, let's just reemphasize that we have been at this now for quite awhile, 18 months or so. We do not have a case of pancreatitis -- none, zero, no clinical pancreatitis. DDI, for example, has 4% clinical pancreatitis, as an example. And in fact, if you look at number of package inserts for the nukes (ph), you see some percentage of total pancreatitis. I'm not going to tell you we'll never get one, but we haven't seen one yet.

Let's just take for example -- let's take a number of 10% Grade IV hyperlipasemia that appears sometime between month three and month nine, just to have wide boundaries. That would mean that one out of every 10 of your patients that you put on our drug would have to come off of the drug and go onto something else sometime between month three and month nine. That would mean, on the other hand, that nine out of 10 of those patients can continue to receive the drug. So if you had a peak sales estimate for our drug of $250 million, that would mean that we would make in your model a little bit more than $225 million.

So I think if you get up into mid-double digits with Grade IV asymptomatic hyperlipasemia, it begins -- even though from a numbers standpoint, it still doesn't make much difference, it begins to psychologically become a worrisome feature. So I would like to see that the incidence stays in the single digits, which it is, and then I think if you run your numbers that way, it does not take much off of the top of what the peak sales could be.

Great. That's very helpful. One final question on the proposed Phase IIb study. Are you going to preselect patients for the M184 mutation? You're going head-to-head against 3TC -- can you just help me understand that aspect?

No, we're not preselecting. In the 203 study, we found that about two-thirds of patients had the M184V mutation at baseline and about one-third did not. And we're expecting, since we're not really trying to do anything very different here, that we would see a similar ratio here again. And in the range of 100 patients per arm, we should get pretty good balance between the number of people who have M184V or don't in the study. And it's not to say that people who don't have M184V never had it and may not get it back again if they're randomized for 3TC.

Great, that's helpful. Thank you.

(Operator Instructions). Thomas Wei, Piper Jaffray.

Thanks. I had actually tried to dial myself out. I'll just follow-up with you after the call. Thanks.

Thank you. At this time, there appear to be no further questions. I'd like to turn the floor back over to management for any closing remarks.

Okay, this is Paul Friedman. Thanks for joining us this morning. I think we're in a strong position, a very strong position, to continue to advance our pipeline and I look forward to keeping you informed going forward with progress of DFC, Incyte 3284, Incyte 7839, as well as some of the later-stage preclinical compounds that we think will enter the clinical trials next year. Thanks again, and with that, we will end the call.

Thank you and thank you callers. That does conclude today's conference. You may disconnect your lines at this time and have a wonderful day.