Incyte (INCY) seems to have a bright potential owing to the candidates in its pipeline and the success of its approved product Jakafi. The clinical trials of other JAK inhibitors look positive and the upcoming catalysts will boost the share prices of the company.
Incyte Corporation is a biopharmaceutical company that focuses on discovering, developing and commercializing proprietary small molecular drugs for inflammation and oncology. The company, since its inception in 1991, has seen a steady growth and today prides in marketing the only myelofibrosis treatment drug.
The pipeline of Incyte is categorized into oncology and inflammation and includes compounds that are in various stages of development. The products are mainly in phase II of studies, while one product - Jakafi® - has been approved by the U.S. FDA for marketing.
The competitors of Incyte Corporation include Amgen (AMGN), Abbott Laboratories (ABT), Array BioPharma (ARRY), Biogen Iden (BIIB), Roche Holding AG (OTCQX:RHHBY), Celgene Corporation (CELG), Geron Corporation (GERN) and Sanofi (SNY).
Incyte has collaboration with Novartis (NVS) since 2009, under which Novartis has the rights to exclusive development and commercialization of ruxolitinib outside of United States. Novartis also received exclusive worldwide rights to the development and commercialization of c-MET inhibitor, with the option of co-developing and co-promoting resting with Incyte. Incyte has already received milestone payments and will also receive royalties for sale of ruxolitinib outside of United States.
Incyte collaborated with Eli Lilly and Company (LLY) in December 2009, giving the exclusive worldwide rights of development and commercialization of JAK1 and JAK2 inhibitors, for autoimmune and Incyte. Incyte will receive the milestone payments and the royalties ranging up to 20%.
Pfizer (PFE) and Incyte formed a collaborative research and license agreement, in January 2006. This agreement gave Pfizer the worldwide rights for development and commercialization of the Incyte portfolio of CCR2-antagonistic compounds.
Incyte Corporation has a total of twelve products in its pipeline, where one product viz. Jakafi (ruxolitinib) for myelofibrosis (MF), has been approved by U.S. Food and Drug Administration (FDA) for marketing. It's the pioneer and sole drug for MF that has been approved by the FDA.
Jakafi® (ruxolitinib) is the only approved product of Incyte that treats MF, a life-threatening blood cancer. It was approved in the November of 2011, by the FDA. Jakafi is a Janus Kinuses (JAK) inhibitor, using enzymes 1 and 2. The patients who are using Jakafi as treatment are showing positive results. Among the patients receiving Jakafi 42% lived at least six months. On the contrary, among the group of patients receiving chemotherapy along with a placebo only 11% survived for six months after the treatment. The sales from Jakafi in 2012 totaled $136 million, and are expected to reach $220 million to $230 million in the year 2013.
The other pipeline candidates include; ruxolitinib, an oral JAK1 and JAK2 inhibitor, for the treatment of Polycythemia vera, in the phase III of study; another for Pancreatic cancer, in the phase II of study. Ruxolitinib is also under study for solid/hematologic tumors, including two phase I/II for adults and one phase I/II for children. Other oncology candidates include c-MET for solid tumors, phase II; IDO for metastatic melanoma in phase II, IDO for ovarian cancer in phase II, JAK1 for proof-of-concept studies in myelofibrosis in phase II.
In the inflammation treatment the candidates using baricitinib (JAK1 and JAK2 inhibitor) are being used for treatment of rheumatoid arthritis in phase III of study, for psoriasis in phase II of study, and another for diabetic nephropathy also in phase II of study. A proof-of-concept study of JAK1 inhibitor is in phase II of study, for rheumatoid arthritis and psoriasis. Other programs for inflammation treatment are in pre-clinical phase, the targets of whom have not yet been specified.
The share prices of Incyte have seen an upward trend through the year, with an increase of 122.58% YTD as compared to S&P's 81.7%, entailing that the company is performing better than S&P. The analyst estimates predict a further increase given the upcoming events.
The mean price target for Incyte is $43.46, with a high $50 and a low of $29. The current price of $36.97, as on November 7, has the potential to rise further, given the catalysts. The mean recommendation by the analysts is to buy the stock.
Incyte is expected to release the data of the proof-of-concept trials of wholly owned JAK1, for Myelofibrosis in December of 2013. The results of these trials, if positive, will drive the stock prices up and increase the investor interest.
The phase 3 data, known as RESPONSE, for the Jakafi polycythemia vera is expected in early 2014. The management is showing confidence in a positive outcome of the trial. And given the positive outcomes the company will file for supplemental new drug application, in first half of 2014. A positive trial could lead the company to new heights, and the chances are very likely due to the success of Jakafi in myelofibrosis.
The company is looking for reimbursement approvals in Europe through its collaboration with Novartis for its product Jakafi. The company expects to enter third major market in the first half of 2014. And also receive milestone payments from Novartis for the approval in France.
Incyte Corporation will be presenting the three year data on the Jakafi responses, in the American Society of Hematology (ASH) Annual Meeting and Exposition from December 7-10, 2013.
Fundamentals and Potential Risks
The company in its third quarter earnings recorded net product revenue from Jakafi of $60.2 million and an $8.2 million royalty revenue from sales of Jakavi outside of the U.S. The sales for 2013 are expected to touch the high end of $220-$230 million guidance provided, excluding product royalties. This increase in sales is encouraging for Incyte, as the product revenue guarantees cash flow required for the operations of the company.
The net loss for the third quarter was $22 million as compared to $21.7 million in the same period of 2012. The R&D expenses were approximately $71.7 million as compared to $50.1 million of the same period in 2012; showing an almost 43% increase. This is due to the advanced clinical trials underway and the efforts to develop its pipeline.
Incyte has $291 million in cash and equivalents as of September 30, 2013. This coupled with Jakafi sales, puts the company in strong cash position. Furthermore, Incyte recently announced offering of convertible senior notes worth $700 million, with the intention to repurchase or retire a portion of the 4.75% convertible senior notes of the company, which are due in 2015. The notes are divided into two categories based on maturity i.e. $350 million senior convertible notes due 2018 and the other $350 million notes in 2020. The company's intention to buy has been met by a sale intention from the entities associated with Baker Brothers. The company intends to use the surplus amount of cash for R&D and other purposes. This offer is beneficial for the investors, as the company will not have to take the infamous path of dilution.
The company has recently been subject to competition at the hands of Geron Corporation, when they announced positive results for their candidate Imetelstat, investigational treatment for cancer, myelofibrosis. The results showed an overall 44% response rate, and showing an effect in the bone marrow indicating to slow or stop the malignancies responsible for myelofibrosis. It proves a direct competition for Jakafi, which only provides symptomatic relief, spleen size reduction, to the patients. The results rallied the stock prices of Geron but Incyte's shares tumbled approximately 7%. However, the results of imetelstat don't demonstrate any clinical response which is mandatory, one of which is spleen size reduction. Thus, imetelstat may not have the potential to dislodge Jakafi's sales; however it may be used with Jakafi as a combination therapy, if and when it is approved by FDA.
The company is faced with two lawsuits, filed in March and April of 2013, alleging that the company released misleading regarding the company's business and prospects relative to the Jakafi's commercial launch. Latest development regarding these lawsuits hasn't been reported, however it poses as a risk to the company's reputation and consequently its stock prices.
Incyte Corporation has seen almost a 139% increase in the share prices and with the upcoming events, it is expected to increase further. The data on the Jakafi and JAK1 inhibitor is also a major catalyst for the share prices.
Incyte has enough cash to see it well through its clinical trials and studies. It expects to receive $60 million in milestone payment from Novartis in the first half of 2014, consequent to the Jakafi reimbursement approved to France. Furthermore, with the royalty payments from sale of Jakafi outside of United States, through the collaborations, the company has a sure stream of cash inflow.
The company is however, faced with two lawsuits, which may not have any substantial impact on the company, but are still a concern. Furthermore, the company is now faced with a possible competitor for its product Jakafi, though it still has a long way to hit the market, if it ever does, but the risk is there.
The positive recommendation by analysts and the huge appreciation in valuations is indicative of investor confidence in the long-term potential of the company and is a Buy signal for prospective investors.