英賽德 (INCY) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen. My name is Melissa and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Incyte Corporation second-quarter financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS)

It is now my pleasure to turn the floor over to your host, Pam Murphy. Ma'am, you may begin your conference.

Thank you. Good morning and thank you all for joining us. With me today are Paul Friedman, Incyte's President and Chief Executive Officer; Dave Hastings, our Executive Vice President and Chief Financial Officer; and Rich Levy, Senior Vice President of Development. We will begin today's call with an update from Paul on progress in our drug development program. Dave will follow with a brief overview of Incyte's second-quarter financial results. We will then open up the call for Q&A.

Before beginning, I'd like to remind you that some of our statements made during the call today, including statements regarding our plans and expectations for our drug discovery and development programs and our financial results and guidance are forward-looking statements. These forward-looking statements are subject to 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 period ended March 31, 2006, and from time to time in our SEC reports. Paul?

Good morning. We are continuing to make really solid progress in advancing our pipeline. We have achieved all of the objectives we set for the first half of this year, including the filing of two INDs in the first quarter, one for Incyte 13739, our inhibitor of the enzyme 11-beta hydroxysteroid dehydrogenase type 1, or more simply HSD1, for the treatment of Type 2 diabetes, and the other IND for Incyte 9471, the most advanced compound from our CCR5 program.

In the second quarter, we initiated Phase I trials in healthy volunteers for both compounds, and we have successfully completed the first single-dose portion of these studies. And provided they continue to be safe and well-tolerated in the multiple-dose portions of the studies, Phase IIa trials for each will start later this year.

Now in addition to the usual Phase I safety and pharmacokinetic assessments, a for our HSD1 inhibitor, Incyte 13739, we also plan, by obtaining biopsy specimens, to assess the ability of the compound to inhibit the enzyme in adipose tissue, a critical tissue for the maintenance of metabolic control.

In our first IIa study in Type 2 diabetics, we will evaluate the effect of 13739 on the two key components of glycemic control, glucose production and glucose utilization, over a 28-day period. And we hope to have top-line data from this study early next year.

Let me remind you that the HSD1 enzyme converts biologically inactive cortisone steroid into the biologically active hormone cortisol. Cortisol antagonizes the effects of insulin by increasing glucose production in the liver and by inhibiting the uptake and disposal of glucose in muscle and adipose tissues. HSD1-mediated production of cortisol within these metabolically important tissues is thought to play a key role in regulating insulin resistance in Type 2 diabetics. So by selectively inhibiting HSD1 and reducing the level of cortisol in these tissues, 13739 may offer a new approach to treating Type 2 diabetes and allied conditions such as dyslipidemia, atherosclerosis, and coronary artery disease.

For our CCR5 antagonist, 9471, a Phase IIa trial will evaluate the compound as monotherapy for 14 days in HIV patients. The study is expected to involve about 20 individuals, and we hope to have top-line viral load data by the end of the year or very early in '07.

9471 is a potent compound with excellent PK properties, consistent with convenient, low-dose, once-a-day therapy. Therefore, we believe 9471 has the potential to provide meaningful advantages over the other CCR5 inhibitors in development.

In parallel with the development of 9471, we are moving a second CCR5 antagonist, Incyte 15050, forward. This compound is still early stage and has not completed IND-enabling tox studies. Provided it successfully completes these studies, we could begin the Phase I program before the end of the year.

Our lead oncology effort, the sheddase inhibitor program, includes our most advanced development compound, Incyte 7839, which is continuing to move forward in a Phase Ib/IIa trial in patients with refractory solid tumors. Sheddase inhibition represents a new way to target the epidermal growth factor receptor signaling pathways, also called the HER Pathways, that play a key role in the growth of breast cancer and other solid tumors.

Unlike other HER inhibitors, such as Herceptin, Erbitux, and Tarceva, each of which target a single HER pathway, or the dual tyrosine kinase inhibitor [Tyker], our oral sheddase inhibitors block signaling through all four HER receptors. In animal models involving a range of HER-driven tumor types, our sheddase inhibitors have been effective as monotherapy and have shown synergistic effects in combination with other cancer therapies, including Herceptin, the HER1 tyrosine kinase inhibitors, and cytotoxic agents.

The primary goals of the Ib/IIa study are to establish the MTD, or maximum tolerated dose, as well as to select a dose to take forward into Phase II. As a secondary endpoint, we plan to measure the HER2 extracellular domain levels in blood. These are also called the ECD, and they are proteolytically generated fragments of HER2 that are produced as a result of cleavage by the sheddase enzyme. Highly elevated ECD levels are seen in certain HER2 positive breast cancer patients, and they are indicative of decreased responsiveness to therapy and poor prognosis.

Additionally, data presented at ASCO by Allan Lipton's group from the Hershey Medical Center demonstrate that changes in the HER2 ECD levels following Herceptin administration are predictive of clinical benefit. Breast cancer patients with less than 20% decrease in ECD levels have a decreased benefit from Herceptin, suggesting that these patients could benefit from other HER2-targeted therapies. The data support our hypothesis that reduction of HER2 cleavage through administration of a sheddase inhibitor could lead to improved clinical outcome and allow Herceptin to be effective in more patients.

Our current plan is to initiate a Phase II trial or possibly several trials in breast cancer patients this year, followed by at least one study in another tumor type, such as non-small cell lung, colon, head and neck, or possibly pancreatic cancer next year.

We have a second oncology program which addresses an entirely different target. We have selected an orally bioavailable compound from this program to progress into clinical development. If it succeeds in preclinical testing, in which it currently is, and it is nearing the end of that, I will disclose the target and potential indications later this year, and we anticipate an IND filing by the end of the year.

In inflammation, our lead CCR2 inhibitor, 8696, is currently also in IND-enabling preclinical studies. We expect to file the IND for this compound later this year and to begin the Phase I program in healthy volunteers early next. If the Phase I trials are successful, we plan to begin Phase II trials in MS patients in mid '07.

We also have a second inflammation program directed at a different target, the development candidate from which is currently undergoing preclinical safety assessment. Assuming it also makes it through preclinical testing, I will describe the target and potential indications later this year. For this program, the IND filing will occur early in 2007.

So to conclude, in addition to this very early 2007 filing for our second inflammation program that I just alluded to, we expect to file three more INDs this year -- in the second half of this year. One for 8696, the CCR2 antagonist for multiple sclerosis; the second for 15050, our CCR5 follow-on compound; and the third for the lead compound from our second oncology program.

We also expect to start three Phase II studies in the second half of 2006, for our sheddase inhibitor, for our lead CCR5 antagonist, and for our HSD1 inhibitor. If all goes according to plan over the next 12 months, we could have clinical proof of concept results for a number of our programs. For 9471 in HIV patients, late this year or very early next; for 13739 in Type 2 diabetic patients by early next year; and for 7839, we could have data on the compound's ability to lower ECD levels in HER2-positive breast cancer patients by year-end, and possibly some preliminary response rates in cancer patients in the first part of 2007.

Because our pipeline includes programs and indications such as oncology, HIV, and multiple sclerosis that we could take through to commercialization on our own, as well as programs such as HSD1 that could form the basis for additional major partnerships, I think we are in a very strong position to build substantial value.

With that, I will turn the call over to Dave, and after his remarks, we will open the call up for Q&A.

Thanks, Paul. Good morning, everybody. I will begin this morning by reviewing the Company's cash position. Our ending cash at June 30, 2006 was $352.7 million, compared to ending cash of $345 million at December 31, 2005.

Our cash use from operations was $44.6 million for the six months ended June 30, 2006. Included in the cash used in operations is a $3.4 million payment made in June as final settlement of litigation with Invitrogen Corporation related to our discontinued genomics information business.

Despite this payment, we are not changing our cash guidance for 2006, which remains a use of between $88 million to $95 million. As always, our cash use guidance excludes the in license or purchase of products, the repurchase of any of our 5.5% convertible subordinated notes, any funds received from the Pfizer collaboration, and any activity related to our strategic investments.

In terms of our 5.5% convertible subordinated notes, our balance stands at approximately $92 million and we have not made any repurchases so far this year. We may from time to time use cash to repurchase these notes, particularly if there are opportunities to do so below par.

Another area I would like to mention this morning is our R&D expense, which totaled $19.7 million for the quarter, compared to $26.6 million in Q2 2005. The reduction in our R&D spend was driven by reduced costs in our CCR2 program as a result of our collaborative license and research agreement with Pfizer, as well as to the discontinuation of the DFC program.

We expect to our 2006 R&D spend to range between $82 million and $88 million. This is unchanged from our previous guidance and, as a reminder, includes a non-cash expense of between $5 million and $6 million related to the impact of expensing share-based payments, including employee stock options. As we have noted in the past, our R&D expenses can vary from quarter to quarter depending on the timing of our clinical activities.

The final area I would like to highlight this morning is our interest income, which amounted to $7.3 million for the six months ended June 30, 2006. We continue to experience higher-than-expected interest income, due primarily to higher short-term interest rates and, to a lesser extent, to slightly higher average cash balances than anticipated. Because of these trends, we are raising our interest income guidance from $8 million to $9 million to a range of $11 million to $12 million.

In conclusion, we continue to be in a strong financial position. Importantly, even assuming we use all cash to redeem our 5.5% convertible subordinated notes, our cash should extend into early 2009. This financial strength allows us to make the appropriate level of investments to continue to advance our discovery and development pipeline.

With that, I will turn the call back to Paul.

Okay, Dave. Thanks. Operator, we would now like to open the call for questions.

(OPERATOR INSTRUCTIONS) Dave Witzke, Banc of America.

This is John Watkins in for Dave today. I had a quick question. With the recent publication in Cancer Cell sheddases, have you seen an increase in inquiries into your program?

We have. I don't want to get into from who. But we actually have had a fair number of unsolicited inquiries, even prior to the publication. But we have had some interest since then. It's only been out for about a week, so --.

Also, we thought that the little writeup, since they had it on the cover, and we -- Biocentury -- is that where we had --?

BioWorld.

In BioWorld, there was a nice writeup on the shedding enzymes and the ability to inhibit and what that could mean. So I think that will stimulate further interest.

How do you think about development going forward? Is this something you would look to take through development or would you look to partner it? And if when, which stage would you look at partnering?

Well, it would depend to a large degree -- and actually I might ask John Keller, who came in right at the beginning of the presentation, to add whatever thoughts he has to what I'm going to say here.

But we really have to know what tumor types and what place in the treatment of those tumors this mechanism works in, before I think we would be in much of a position to know when or if we would partner the program. If it looked like we were going to have efficacy in something like primary breast, I think that would be a situation where we would need to partner the program.

At this point, although we are interested in talking to people and we will, we are in no hurry to partner the program. And there are certainly scenarios where we could very readily take the program all the way through to commercialization. John, do you want to add anything to that?

I think that captures it completely --. (indiscernible).

Thank you very much.

Thomas Wei, Piper Jaffray.

I had a question on 9471. It sounds like you've completed single-dose studies. Did you see anything there? Was there a dose-limiting toxicity that was reached?

No.

I guess the same question for the HSD1 inhibitor. What does the tox profile look like there so far?

It is remarkably clean, both preclinically and so far in man.

Then just one last question on the sheddase, the decision to go into breast. Is that just based on the biology here, or can we assume that in the dosing study that you have been running so far there may have been some responses seen in breast cancer patients?

I would not assume the latter. The pre-clinical data we have, the story I went through with respect to the extracellular domain makes breast the most -- by far the most compelling of the tumor types to go into first.

We take all comers in the Phase Ib/IIa study that we are currently conducting. We are at, I think, the third or so dose level as we are rising -- doing rising doses. These patients are very late in their disease process; they are refractory. So I would not assume that we have or we have not at this point. We just have not had enough experience in patients to be able to make any cogent comments about what we're seeing or not seeing.

All right. Thanks very much.

Richard Smith, JPMorgan.

Just for clarification. The Phase IIa trial with 9471 in treatment-experienced patients, are those salvage patients or second line?

Well, I'm going to ask Rich to comment on that, because I did not say that they were treatment-experienced. So Rich, why don't you clarify where you think we will be with those patients.

Yes, the patients that will be in that first study will be people that do not need to be on therapy, are not on therapy. It will include naive patients, but not necessarily restricted to either naive or experienced. The idea is that you want to give this dose for two weeks and not have to continue on that drug until we have more long-term safety data.

So in the press release when it says phase IIa trial in treatment-experienced HIV patients in October, that is incorrect?

It is not a full explanation of the patient population, so there would be most likely a fair number of naive patients in that study as well.

Okay. And on the sheddase program in breast cancer, can you give us a bit more information about those types of patients? Are they refractory, etc.?

You mean the ones who we're currently looking at? (multiple speakers)

No -- the Phase II. Sorry -- the Phase II.

Well, we have had, for example, a couple of head and necks. We have had -- what else have we had?

I think his question is about the --

Yes. Sorry -- the upcoming study.

Oh, the upcoming study. I thought you said refractory when you asked the question. Yes, the upcoming study is still in its formative stages, but do you want make any comments any further, Rich?

Just say that we have a couple of potential breast cancer studies in mind. We may do one. We may do more than one. And we have an expert meeting coming up to help us make some of those decisions very shortly.

Okay, thank you.

Annabel Samimy, UBS.

A couple questions on the sheddase. I know you still haven't reached maximum tolerated dose, but do you feel like you have reached a therapeutic dose level yet?

Well, we think we are close to being -- we are in the, I would say, the low end of that range right now. And I think that is about all I can say.

Okay. And just in terms of reaching that MTD, what toxicities might you expect based on what you have seen in pre-clinical studies and also the specific mechanism of action? What might you see in terms of toxicity?

Well, in the pre-clinical tox, there surprisingly was not that much to hang your hat on. If you think about the mechanism of action, and you believe that the tyrosine kinase and Erbitux kind of -- things limiting toxicities in the clinic, you would think you might see some GI stuff or you might see some skin eruptions as toxicities.

But so far I think we have not seen either of those. It that correct? So at this point, we are just increasing the dose as we go along.

I guess to that point, I guess one of the issues with Erbitux is that skin eruptions was sort of an indicator of its efficacy. So does that cause any concern for you or is it just a little bit too different to really make that connection?

I think it is too different, and I am not as convinced as others are that they necessarily go together. In fact we believe, without getting into a lot of detail, that this mechanism may be relatively free of that because of the -- it is kind of a long explanation.

But if you have in normal tissue unshed ligands for the HER1 receptor that are in proximity to the receptor, you may well be able to -- in skin, for example, have enough signaling through the HER1 pathway in normal tissues to avoid that particular toxicity.

That is just a hypothetical speculation. And at this point, all we can say is that we have gotten up into the low portion of what we think from animal studies would be the therapeutic range and we have not been encumbered by a rash of rashes, if you will.

Okay. Just one more question. With regards to the Cancer Cell article, I guess they had mentioned that one of the problems with some of the current EGFR inhibitors is resistance. Do you not expect to see resistance with this type of mechanism of action such that the resistance would not pop up?

Well, I think it is way too soon to say. I think this particular mechanism may be less prone to resistance than tyrosine kinase inhibitors, but I obviously don't know that for a fact.

But what I do believe is that if you use this in combination with the either tyrosine kinase inhibitor or a receptor blocker, you would be -- you would give the patient a higher probability of avoiding development of resistance, because you would be coming at the tumor with multiple mechanisms.

Okay, just one more question, just if you'd indulge me. You ran through it pretty quickly, but by the second half of '06, you're going to achieve three Phase II studies, sheddase, CCR5 and the HSD1 inhibitor. And the data that we might see in the second half is what again?

Okay, so for 9471, we would hope to have viral load lowering information. Whether we have it on all patients in the study or enough to, with certainty, tell people about it or whether we slip into the first month of '07 is not entirely clear until we see at what rate we improve the patients.

For sheddase, we would hope to have data on ECD-lowering in a number of breast cancer patients. And for 13739, we will be doing the adipose tissue biopsies to show inhibition of HSD1, and that data should be available toward the end of the year.

Then we will have started the formal Phase II, looking at glucose production and glucose utilization in diabetics. That data we probably would not have until the early part of '07.

Okay, great. Thank you.

Adam Cutler, JMP Securities.

A couple of questions on the CCR5 program. One is, is there anything that you know right now about the backup that makes you think that it might have advantages over the program that is further ahead? Or is it purely just wanting to hedge your bets a little bit and have a backup close behind?

Well, you always want to hedge your bets, so that is certainly part of it. But there are some pre-clinical data with 15050 that have led us to believe that it could look even better than 9471. But 9471 in man so far has actually looked significantly better than we would have predicted from the pre-clinical data.

So it is going to be harder to beat than we thought. But having said that, we still believe that we should take a look at 15050 before we decide which compound to go with. But the low-dose once-a-day PK and potency data that we have with 9471 in the clinic I think augers pretty well if the drug continues to behave in a safe and well-tolerated fashion, for having a distinct advantage over both the Schering compound and the Pfizer compound, which are being dosed twice a day.

So what is the hypothesized advantage of the backup compound?

Well, if you think about it, it could have an even longer half life. It could have a flatter profile. There are a number of things that it could have. There could be some neurologic advantages as well.

Okay. And the FDA held a hearing in May regarding CCR5 and development of CCR5 inhibitors, and I am wondering if you have any kind of comments or if you have any takeaways from that that may impact the development of your CCR5 inhibitors.

Well, I will say a couple of things and Rich was there, so then he can add to it. They certainly, I think, came away, the people that were there, believing that the class had potential to be very useful in HIV patients. I think there was a feeling that neither the liver function abnormalities that were seen with the GSK compound or the reported higher-than-expected lymphomas that were seen in the Schering program were mechanism-based. They thought that the liver function problems were specific to the GSK compound and that the lymphoma data in the Schering studies was likely a statistical fluke.

The one issue that the FDA seems a little bit more concerned about than the experts who were there is the possibility of driving the [clanchy] species towards the CXCR4 types. But that I think is -- I don't think that is a significant issue, based on the fact that if it were in the now thousands, several thousand people who have been in the Pfizer and Schering studies, it would have emerged as a major problem.

There are a couple of outliers or a couple of patients where, upon cessation of therapy, they did not seem to revert back to the CCR5 predominant set of quasi-species. But the vast majority of people, there has been no issue. I don't think it will ultimately be an issue. But that seemed to be the one toxicity issue that was still on the FDA's mind.

With respect to what it is going to take from a cost standpoint and from a patient follow-up standpoint, that is something that we did come away with a little more sober than we were before we went to the meeting, and I'll let Rich expand on that.

Yes, I think the main issues that the FDA has are really lack of long-term data with this class of drugs. And that can relate either to potential for X4 tropism or the potential that you are affecting the immune system. There's no data out there or presented at the meeting that says that there are actually problems. It's more a question of generating how is the industry going to generate data to answer these questions.

And my feeling coming out of that is that Pfizer, and to a certain extent Schering, will be the trailblazers in answering those questions before we get to those very late-stage follow-ups, where they are currently talking about five-year follow-up by one mechanism or another, in all the late-stage studies.

Depending upon what happens with patients who have been on Pfizer's drugs or potentially Schering's drugs, before we get there, that may have a big impact on potentially reducing the long-term burden for us. So there was nothing there that scared us away.

It just may cost us a bit more in patient follow-up than we had anticipated when we looked at what we thought the cost of the studies were going to be.

Okay. On the HSD1 program, do you have an idea of what you'll do in Phase II? Will it still include biopsies? And do you have a vision perhaps for future studies or eventually, if and when this drug gets on the market, what other drugs it may be used with?

Do you want to answer that, Rich?

Only in broad strokes, at this point in time. Right now, we are trying to demonstrate proof that the mechanism is active as quickly as possible. But the longer-term development of the drug is looking at really measures of glycemic control. Primary endpoint in the later studies will be things like hemoglobin A1c levels, which are measure of glucose values over time.

Now almost all of the classes potentially could be used in combination with this, which is somewhat different. Whether in the long run it will turn out to be better used with an insulin secretor drug versus something that also reduces insulin resistance is something we will test in the clinic when we get there and figure it out.

It doesn't take a large number of patients in each of these studies to be able to answer those combination questions. The size of the program in order to get enough safety data would allow us to do that without increasing the size of the program, to be able to specify how it should be used.

And we don't plan to do biopsies past this first set, which we're doing in Phase I, in one arm where we will be looking at obese individuals.

Okay, thanks a lot.

Soham Pandya, SIG.

Recently, Merck released some data at EULAR with their CCR2 antagonist program in RA. Can you comment on that? Do you think it is something about the class or is it with their compound in particular?

Yes, so there have been two sets of data that have come out in the last few months, Merck actually presenting data and Millennium just alluding to it and planning to present.

Millennium reported positive results with their CCR2 antibody in their one-month atherosclerosis Phase II study. And the primary endpoint was a reduction in C-reactive protein or CRP levels. So they are seeing potentially relevant activity there.

The Merck study was a three-month Phase II RA trial, and it was a small molecule antagonist, and they saw no efficacy versus placebo. To convince themselves that they were in a therapeutic range, they used an assay called monocyte shape change as a pharmacodynamic marker. And they made that measurement in healthy volunteers in Phase I, but they actually did not make that measurement in the Phase II trial.

But they saw at the high dose -- I think they used a 10-MG dose and a 0.4-MG dose were the two doses -- at the high dose, they saw 80% suppression, at 10 milligrams, and then at a [20-fold] lower dose, they saw 50% suppression. So the results suggested to them that they were in a pharmacologically relevant range at the doses that they evaluated in that study.

And we have no evidence at this point to suggest that they were not in a therapeutic range, although you could get differential protein binding in an RA population versus the healthy volunteers. But I think that is probably a stretch, to have something like that explain the negative results.

It may be that in RA, which is probably the most inflammation-intense of the range of diseases where this mechanism could work, something more indolent like atherosclerotic plaque or preventing monocyte migration into fat in diabetic patients are more toward the indolent inflammation side of the spectrum, it may be that the drug will work in the more indolent diseases, and this mechanism will not work as well in active rheumatoid arthritis.

There are however -- I think the jury is still out on that. And it could be their compound; it could be where they were. We cannot speak for what Pfizer will do in RA, so there, you would have to talk to them directly to determine whether they are going to go ahead and study the compound in active rheumatoid arthritis.

But another way that you could envision approaching RA -- and if the hypothesis that the mechanism more likely to work in lower levels of inflammation where the macrophage is the predominant cell in the tissue you're looking at, like the foam cells in the plaque or the increased density of macrophages in the fat of diabetics -- if that is the way it ultimately plays out, the way you could still approach RA would be to achieve remission, put the patient into a more low-level inflammatory phase with a biologic, and then use the CCR2 antagonist to maintain the patient in remission.

And we have discussed internally that kind of study. We actually thought about doing that well before we licensed the program to Pfizer. We have discussed this with Pfizer and we have discussed this with outside expert investigators, and there certainly seems to be a general interest in that approach to still having the CCR2 antagonist be useful in the RA setting.

Okay, great. That's very interesting. One final point of clarification on the Phase IIa study that is coming up with the R5 inhibitor in 9471, I'm still not clear on the 20 patient population. Is it treatment-naive? Is that the current plan right now?

It is not planned to be purely naive or purely experienced. It is people that are not on drugs at the present time, don't need to be on drug, and have plenty of therapeutic options open.

What that population ends up looking like in terms of whether it is going to be predominately naive or predominantly experienced is -- I can't say for sure until we see who actually gets enrolled in the study.

Right. So has there been any efficacy data in this patient population before with other inhibiters?

Yes, I think that if you look at the programs that others have done within their two-week timeframe, it's largely a similar patient population -- people that are not on drug, many of which are naive. But some of those patients in other studies had also had drugs at some time in the past.

See, because it's a totally new mechanism, what we've seen in those two-week studies was the same level of viral load lowering, whether the patient was "treatment-experienced" or treatment-naive. You still got very profound viral load lowering.

So for us to get the data that we need, either -- as long as somebody hasn't been on a CCR5 antagonist in the past, we should see significant viral load levels.

That's great. But I'm just more concerned about tropism and the potential for someone to have some reservoir of X4.

Yes, so all of these patients would have tropism assays before the study. They would all by assay be determined to have pure R5 virus.

Thank you.

Vinny Jindal, ThinkEquity.

Actually all my questions have been answered, but thank you.

Thomas Wei, Piper Jaffray.

I will follow-up off-line with the rest of my questions. Thanks.

(OPERATOR INSTRUCTIONS) David Witzke, Banc of America.

Missed part of the call, so hopefully it has not been asked. But, Paul, looking out a year from now, you could have five or six active development programs in human testing. What is the bandwidth next year for additional INDs? Is there kind of a run rate on INDs you think you need to support a pipeline or is your focus turned more towards licensing later stage compounds?

We always are looking for licensing opportunities. I mean, to be realistic, when you say later stage, things that are in IIb or Phase III. If they are out there to be licensed, then there aren't very many of them and they are good, they are extremely expensive.

And I think realistically, it would be -- not a miracle, but it would be highly unlikely that would find such a compound and be able to pay what a big pharma company would be able to pay. It would have to be a situation where the other company wanted to be much more involved and a true partner in a relationship, and for some reason they developed a significant affinity to us for us to, I think, land such a compound.

With respect to INDs, I think what you are seeing this year, where we will file, if all goes as it's going, five and then the sixth one within the first month or two of '07, is the fruit that we harvest from our discovery efforts when we began to make the company a discovery and development company.

The rate of INDs going forward, we will not be filing five and six INDs a year. I think this is a onetime shot for that rate. We probably will settle into a twoish kind of number, would be my guess, going forward, which could involve backup compounds for the existing programs, as well as INDs in one or two of the newer programs. We always try to have a couple of programs in the background so we can bring compounds forward. But that is kind of the rate that we see going forward.

The compounds you're putting in demand so far have been working on difficult to drug targets in many cases, where I guess your core competency is really medicinal chemistry. How agnostic are you to therapeutic area going forward? Are you looking at challenging targets where you have expertise or are you really now going to look towards building therapeutic expertise and stick with inflammation, cancer, HIV?

Well, those are certainly the areas that -- inflammation and cancer are areas where our discovery expertise exists and where, certainly in cancer and in niche areas in inflammation, where we could also be fully integrated. But in both of those, they still provide licensing opportunities if they are appropriate. So going forward, we certainly will emphasize those areas.

HIV, we know that area. It is another area where we could and would plan to, if the situation were appropriate, to commercialize ourselves there.

Other areas, such as the HSD1 area, that is going to require us to find a partner at some point in time. So going forward, we would not -- I don't think agnostic is the word. I think we would favor inflam and oncology. But we would not veto an extremely interesting program where we thought we could utilize the advantages that we had, even though it was in another therapeutic area.

Thanks. That's helpful.

(OPERATOR INSTRUCTIONS) There appear to be no further questions. I would like to turn the floor back over to Dr. Paul Friedman for any closing comments.

I would just thank you all for listening to the presentation today and participating in the Q&A. This is obviously because of the large number of INDs a very important and I think will prove to be a very productive year, and I look forward to letting you know our progress in future calls.

In particular, I'm looking forward to being able to describe the new oncology program and the new inflam program to you, which I think at the latest would be at the next quarterly call, if not before that. Thanks again and with that, we will end the call.

This concludes today's Incyte Corporation conference call. You may now disconnect.