Incyte: Another Celgene?

| About: Incyte Corporation (INCY)
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Summary

The biotech drug developer and marketer INCY has turned profitable on booming sales of its lead drug Jakafi.

The company may see its second lead drug, baricitinib, reach the market next month.

Other drugs could come to market later this decade.

This article initiates coverage on this strong company and lays out certain parameters I'm looking at to accumulate additional shares, given the stock's high valuation.

Background

Even if the Fed might be finally getting a lot tougher on interest rates, which would tend to depress P/E multiples, there's always room for at least a starter position in a secular growth story. While the valuation is really not attractive, the chart and the news flow led me to establish a very small starter position in a top-tier drug developer, Incyte (NASDAQ:INCY).

This article serves as an initiation of coverage for INCY. I've traded it several times since H1 2015, always profitably, but now my sights are set on longer term capital gains. However, an important caveat is that while with secular growth stocks - which may be ready to rotate back into favor from the cyclicals - valuation may not stop them from advancing, INCY has valuation challenges. Part of my thesis in this article, however, is to make the case that although INCY at $102 is trading above 12X sales per share based on consensus 2017 estimates and the company is not especially interested in staying profitable - preferring greater R&D activity over the bottom line - there is so much probable value in its lead product and enough realistic potential in its two lead out-licensed drugs that INCY should not be considered as a bubble stock at this price.

There are characteristics of this company that remind me of Celgene (NASDAQ:CELG) and of Regeneron (NASDAQ:REGN), two stocks that from time to time have grown into challenging, perhaps highly challenging, valuations. CELG, like INCY, boomed by developing the IMiDs, principally Revlimid. Basically one insight made this large cap stock; years later, it added the internally-generated blockbuster Otezla. The therapeutic foci of hematology-oncology and secondarily inflammation/autoimmune diseases is almost identical between CELG and INCY.

There are similarities as well between INCY and REGN. A general one is the strategy of growth via partnering with larger, established companies to help fuel growth. More company-specific is that each is a prolific developer of clinical-stage products, and each company took some time in the 1990s to focus on what has been for each a successful and differentiating growth strategy.

To sum up the goals of this article, they are to:

  • provide my overview of INCY, with certain relevant details
  • make the case that the stock is richly priced but is far from a bubble valuation
  • provide my current prism with which I am tracking the progress of the company.

While hope is not the best investment strategy, I hope that INCY either trades flat as it makes progress, or trades down for no serious adverse reason, thus allowing me time next year to establish a larger position in this name at more favorable valuations. Long term, I'm optimistic that INCY's aggressive, CELG-like focus on growth within the heme-onc field could well reward patient shareholders.

Introduction to INCY

Incyte was formed in the wild biotech boom year of 1991 and IPO'ed in 1993. From a price that looks like around $2/share (adjusted for any splits) in late 1993, INCY shares have grown around 18.6% per year. The stock peaked in the $133 range in September 2015. It first reached Friday's closing price of $102.02 on or about April 17, 2015.

The multi-year chart of INCY shows a relatively restrained persistently upsloping uncoiling pattern ever since the stock bottomed near $2 in March of 2009. I really like the chart. INCY is one of a small number of biotechs that is in a bull market configuration on all time frames I follow, from the 50 day ema to longer time frames. When I see a chart like this, I want to be part of the story unless I can find a good reason not to join in the fun.

Management is largely from Big Pharma and has strong oncology experience. The bio of its leader is stellar; photo included to show that despite his rise in the industry, he's far from elderly:

Image of Hervé Hoppenot , Incyte Corporation

Chairman, President, and Chief Executive Officer

Hervé Hoppenot joined Incyte in 2014 as President and Chief Executive Officer, and was appointed Chairman of the Board of Directors in 2015. Prior to joining Incyte, Mr Hoppenot was the President of Novartis Oncology, where he was responsible for translational medicine, development, approval, and commercialization, which included $11 billion in global sales, the largest oncology pipeline in the industry, and 8000 employees in 50 countries. Mr Hoppenot joined Novartis in 2003, and, in addition to his role as President, served as Chief Commercial Officer, Head of Global Product Strategy & Scientific Development, and Senior Vice President, Head of Global Marketing. He started his career in 1983 with Rhone Poulenc, later known as Aventis, where he served in several senior roles of increasing responsibility, including Vice President of Oncology and Head of the US Oncology business unit. Mr Hoppenot holds a diploma from ESSEC Business School.

The CFO, David Gryska, is not from quite a Big Pharma background, but has served as CFO of CELG. Another senior executive, Michael Morrisey, also served in senior management at CELG.

The credentials and experience of the featured senior management are flawless for a heme-onc specialty pharma growth company. My only complaint is that best practices is for the Chairman and CEO positions to be held by different people, as CELG, REGN and also Gilead (NASDAQ:GILD) are doing.

With that brief introduction, next are a listing of several discrete actual, pending or potential profit centers for INCY, allowing a sort of sum-of-the-parts analysis. After presenting this, I'll do a top-down summary, which may be at least a good way to think about where this stock can trade over time.

First, the major marketed product, Jakafi, also called Jakavi ex-US, where NVS has marketing rights.

Jakafi - the basics

Almost all of INCY's revenues come from Jakafi, the brand name for the active drug ruxolitinib, or ruxo. Ruxo is an intercellular enzyme inhibitor, more specifically a kinase inhibitor, most specifically a Janus kinase or JAK inhibitor. Much of INCY's realized expertise involves developing different "flavors" of JAK inhibition to accomplish different therapeutic effects.

Jakafi is approved in the US and EU. Its US approval is for two classes of somewhat related rare blood disorders. One is myelofibrosis, or MF, and the other involves a rare myeloproliferative neoplasm called polycythemia vera, also called P. vera or simply PV. Approved 5 years ago by the FDA initially only for myelofibrosis, Jakafi has little real competition from other branded drugs for either indication. GILD recently announced weak Phase 3 results for a potential competitor for the myelofibrosis indication, momelotinib, which therefore may never reach the market (discussed in the next section). No other candidate is in late stage trials that I am aware of.

In Q3, INCY led the report by saying that Jakafi generated $224 MM of net product revenues, up 39% yoy. This represented deceleration of growth, which was up 46% yoy over the first 9 months of the year. Royalties from NVS were $30 MM in the quarter and $77 for the 9 months, versus $18 MM and $51 MM respectively. This suggests unusually rapid acceleration in Q3 this year versus the first 6 months of the year, and I'm not sure what a truer underlying trend would be.

This sales growth led to INCY turning profitable under GAAP, at $0.19/share. With some R&D expenses being deferred until next year, in the conference call, the CFO suggested $105 MM in GAAP profits are expected for the full year.

Clearly, this stock is trading on a combination of Jakafi's future profit stream plus everything else.

Some details on momelotinib

GILD acquired a Canadian company YM Biosciences in a deal announced 4 years ago for $510 M, thus gaining access to its major pipeline asset, momelotinib, a JAK inhibitor invented in Australia. At the time, this sounded promising and put some brake on estimates of Jakafi's value. From GILD's press release in December 2012:

YM's lead drug candidate, CYT387, is an orally-administered, once-daily, selective inhibitor of the Janus kinase (JAK) family, specifically JAK1 and JAK2. The JAK enzymes have been implicated in a number of disorders including myeloproliferative diseases, inflammatory disorders and certain cancers. YM has reported positive results from a Phase 1/2 clinical trial of CYT387 in 166 patients with myelofibrosis, a life-threatening myeloproliferative disease. Pending completion of the acquisition, Gilead intends to initiate a pivotal Phase 3 clinical trial of CYT387 in myelofibrosis in the second half of 2013.

Eventually, the published data on the Phase 1/2 study were suggestive that the drug worked for MF, but that neuropathic side effects could be a bothersome and permanent side effect.

GILD performed two parallel Phase 3 studies, announcing their results last month. Relevant parts of the press release say this, interspersed with my commentary to (one hopes) translate the key point(s):

Gilead Sciences, Inc. today announced top-line results from two Phase 3 clinical trials (SIMPLIFY 1 and 2) evaluating momelotinib, an investigational inhibitor of Janus kinase (JAK) compared to ruxolitinib or best alternative therapy (BAT) in patients with myelofibrosis. The SIMPLIFY-1 study achieved its pre-specified primary endpoint of non-inferiority to ruxolitinib for splenic response rate at Week 24 (SRR24), defined as the percentage of patients experiencing a ≥ 35 percent reduction in spleen volume (momelotinib: 26.5%; ruxolitinib: 29.0%; 95 percent CI: -11.2% to +5.6%; p=0.011.

Based on the primary endpoint, with moderate statistical significance, momelotinib looks similar to or slightly less effective than Jakafi in a key measure of efficacy, but could actually have been slightly more effective. But GILD went on to point out negative news:

Non-inferiority was not achieved for the key secondary endpoint of response rate in total symptom score (NYSE:TSS).

Missing on a "key secondary endpoint" given numerical inferiority on the primary endpoint casts a pall over the drug, even though GILD (promotionally and possibly inappropriately) went on to add that certain anemia-related parameters came out superior for its drug versus Jakafi (but could not be statistically analyzed because of the failure in TSS.

Then the press release moves on to discuss the other Phase 3 study, SIMPLIFY-2, casting a pall on this drug's prospects, reporting:

SIMPLIFY-2 did not achieve its primary endpoint of superiority of momelotinib compared to BAT in patients previously treated with ruxolitinib in SRR24 (momelotinib: 6.7%; BAT: 5.8%; 95 percent CI: -8.9% to +10.2%; p=0.90). Eighty-eight percent of patients randomized to the BAT arm continued to receive ruxolitinib...

The press release then goes on to mention, apparently irrelevantly so far as the FDA would be concerned and possibly inappropriately, certain advantages of momelotinib that could not be studied statistically because - after all - the study failed to meet its primary endpoint. Editorially, my comment is that GILD herein, and other companies, torture statistics with these sorts of promotional asides. Here's the problem, as an analogy. If you can't get in the front door because it's locked, it does not matter whether you could have gotten into some other part of a building. You're simply locked out. It's the same for these pre-specified stratified ways of analyzing clinical trials. They are arranged with great care and much discussion with statisticians, and reviewed with the FDA before beginning the Phase 3 trials. I think it's fairer to the shareholders not to tantalize them with morsels of good news. Better to stick to the top-down results of the primary endpoint and key secondary endpoint(s) and then sum up as GILD did in this press release (emphasis added):

"The results from both the SIMPLIFY-1 and SIMPLIFY-2 studies indicate that momelotinib provides some treatment benefit..." said Norbert Bischofberger, PhD, Executive Vice President of Research and Development and Chief Scientific Officer. "We plan to discuss these results with regulatory authorities to determine the next steps."

If momelotininb makes it to market, I would think that it will just be a second-line drug, used if Jakafi is contraindicated, not tolerated or is/has become ineffective. So to the extent it has a chance of being approved, which is possible, and promoted by GILD along with Zydelig, this promotion may actually aid Jakafi, about which INCY says is not being used in enough cases where it is indicated. At this point, with positive survival data out to 5 years since initiating therapy, Jakafi has an impressive efficacy/safety story. There's no conceivable way that momelotinib, or any competitor moving along in early-stage clinical trials, can threaten that; it just takes time.

One of the take-home points for me is that treating MF is extremely difficult. Certainly, other researchers have attempted to get a competitive compound into clinicals, but Jakafi is best-of-breed and may not have in-class competition for many years, if ever, until it finally goes generic. Thus, compliments to INCY's team for an outstanding scientific achievement, one with huge commercial as well as medical significance. Given the additional productivity of INCY's team, as is shown below, this is a story I want to be part of.

At least one other news item came from this weekend's ASH meeting regarding MF:

CELG and Acceleron (NASDAQ:XLRN) present Phase 2 data regarding MF

The companies are out with a press release discussing an XLRN drug, sotatercept, in an investigator-initiated study in MF. This showed:

  • 19 patients were enrolled and treated with sotatercept (12 patients at 0.75 mg/kg and 7 at 1 mg/kg) and 14 of these patients have received at least 5 doses of sotatercept and are evaluable for response
  • 36% (5/14) of the evaluable patients achieved an anemia response, defined as a composite of RBC-transfusion-independence and hemoglobin response (increase of ≥1.5 g/dL from baseline on every determination consecutively over ≥84 days without RBC transfusions).

So, 5/19 had an anemia response with this injected protein. The press release goes on to show some safety issues:

13 patients have discontinued from the study: 5 due to no response, 2 proceeded to stem cell transplantation, 2 had MF progression, 1 transformed to AML [leukemia], 1 each withdrew consent, had unrelated medical problems and hypertension.

CELG may in my view be overstating things a bit with this quote from the press release:

"These initial and encouraging data support our efforts for further clinical development work with our Acceleron-partnered programs in myelofibrosis," said Michael Pehl, President, Hematology and Oncology for Celgene. "We believe these programs have the potential to address a major unmet need in patients with myelofibrosis."

It's difficult for me to see this small study, with these results, so far from the multi-year Phase 3 program needed to bring this drug to market for this indication, as being a threat to Jakafi. If anything, it underscores the difficulty in treating MF.

Guesstimating Jakafi's present value

This is a toughie. Jakafi has several sources of growth, now that the path forward has, say, minimal competition in MF and just the old standard, hydroxyurea, in PV. Yahoo! Finance (YHOO) shows analysts looking for full year revenues for INCY of $1.1 B in 2016, rising to $1.53 B next year. There are other sources of revenue from other products or royalties, and from milestones, but might analysts be looking for $1.4 B from Jakafi plus NVS royalties for next year?

Here's one way I'm thinking about things for now. First, while the 10-K listed a 2026 potential patent expiration in the US, the Orange Book now shows a drug substance-related patent that runs until June 2028. There are also two other drug substance-related patents listed now that expire in December 2027. So I am going to assume an 11-year product life in the US from here.

Next, comments from the company on the conference call and other INCY documents and presentations make it reasonable to think of all the following reasons that the product might grow for many years. Some reasons that occur to me include all of the following:

  • top-level pricing flexibility (little competition, drug treats life-threatening rare diseases)
  • new approved indication (graft-vs-host may begin pivotal trials in H1 2017)
  • off-label use
  • earlier use in the diseases
  • more prolonged use
  • market penetration is suboptimal and thus could increase substantially.

The last of these may be helped by positive 5-year survival data presented at the current ASH meeting.

With the above numbers and thinking, I will toss out the following highly tentative possibilities.

First, that Jakafi/Jakavi revenues grow at a 20% CAGR for the next 4 years. That could total $6+ B and end at least at $2 B annual revenues to INCY.

Second, that the product has 7 years left and grows at 10% per year for those 7 years. That could give terminal year revenues of $4 B, and total revenues over that period of $27 B.

I think the above numbers could be too high or too low. There's also at least a possibility that as CELG did with Revlimid, INCY could find a very late-listed patent that could prolong its patent-protected life further.

In any case, a portion of the aggregate number, whatever it is, will be pure royalty income from NVS. Of the larger amount that will come from INCY's sales effort in the US, the COGS will be negligible, say 1% or so. Attributable SG&A is a closely-guarded secret within companies, but since selling prices are so high and prescribers are so well-known and easy to find, perhaps only 15% of total US revenues need to go to SG&A. The mix, therefore, will be extremely profitable. Then the more purely financial factors, taxes and discount rates for future income, need to be estimated.

A "quick and dirty" way I'm thinking of this is 50%, so that if sales come out as hypothesized, then $13.5 B might be the present value of the total profit stream. A guess, of course, but one point of this exercise is that if an analyst thinks these numbers are plausible, then given all the other identifiable opportunities, INCY looks like a bubble stock - but it's not.

Next, a potentially lucrative niche for ruxo.

A topical cream formulation of Jakafi for a type of baldness could be profitable

It turns out that a specialized form of baldness, alopecia areata or AA, generally has an autoimmune etiology and can respond well to JAK inhibitors. Anecdotal and limited clinical trial evidence support this possible indication for some of the JAK inhibitors.

Pfizer's (NYSE:PFE) JAK inhibitor Xeljanz (tofacitinib) is in Phase 2 for AA. INCY has a cream containing ruxo in Phase 2 as well for AA. If I understand INCY's deal with NVS, INCY has global marketing rights for a cream for non-oncology indications.

It is estimated that 1-2% of the population has AA. Some forms include total loss of body hair; milder forms predominate. If the JAK inhibitors in general, and ruxo in particular, are effective, I believe it's not yet known whether the treatments will be curative, have a long-lasting effect but need to be repeated, or will be given chronically.

One good thing about these sorts of studies is that the patients should be easy to find, the trials are straightforward, whether an effective treatment is durable or not is readily known, and so the cost of the program is low and the time frames are short. Thus I like the risk-reward here. I would give this program a positive risk-adjusted present value, and it's something to watch.

More closely-watched for the year ahead is:

Baricitinib for RA takes center stage

This is an INCY drug that it has out-licensed to Eli Lilly (NYSE:LLY) for milestone and royalty payments. INCY will not co-market. The royalty rate is in the 20-29% range. Baricitinib, or bari, is also a JAK inhibitor. It competes with Xeljanz and, especially, the new Xeljanz XR, a once-a-day version with much improved pharmacokinetics. The Xeljanz complex is now annualizing at $1 B after a slow start for the twice daily Xeljanz.

LLY may receive FDA approval by the 3rd week of January. Bari has some good results in its dossier on refractory patients, in improving signs and symptoms of RA in comparison to industry leader Humira, in patient-reported (as opposed to observer-assessed) outcomes in physical function and quality of life in RA, in reducing joint deterioration in non-responders to standard therapy such as methotrexate, and in comparison with methotrexate for naive patients.

Bari is a once-daily highly potent oral drug. In its Q3 conference call, LLY commented on its plans for bari:

We're excited about baricitinib, too. The profile from the Phase III program, four very large studies, is extremely positive. That drug is under review at the FDA and we're anticipating a launch some time in 2017. You are identifying a key issue in that class. RA is crowded. It is heavily managed by payers. Lilly has a strategy on baricitinib to really focus on the differentiation of the product versus the standards of care of methotrexate and Humira. We want to position the product in really the pre-biologic setting. And that may take some time to achieve, as you're pointing out.

The oral JAK inhibitors to treat rheumatoid arthritis could represent a commercially major therapeutic class. All that's needed is for treating physicians to like the clinical outcomes. Certainly patients will prefer one pill, once a day over intermittent injections. The advent of biosimilars to Humira, Enbrel and Remicade (the latter of which is given IV, not subcu) will diminish promotion of the TNF class while enforcing price restraint amongst LLY, PFE and their competitors. Lack of biosimilars to Humira and Enbrel, should the patents hold, will keep them promoted, but will also provide more of a pricing envelope. So, either way, if the drugs work well, I believe that both Xeljanz XR and bari if approved, could become multi-billion dollar annual sellers.

If so, then if we arbitrarily take a 25% royalty cut to INCY, the profit potential is significant. Whereas, the costs have already been expended. So there is nothing but upside from this particular indication.

Bari is in Phase 2 for atopic dermatitis and also for lupus. No guarantees - but it's nice to see that LLY likes the compound and its side effect profile so much that it's considering bari for these other indications.

Another cost-free source of potential revenues comes from a drug licensed to NVS.

Capmatinib may hit the market in two years

I think this was a throw-in with the big NVS deal regarding Jakafi. Capmatinib is another INCY-invented molecule; the royalty rate is 12-14%. It is an inhibitor of an important therapeutic target in oncology, c-MET (which has other names as well). The best-known member of this class is Xalkori from PFE, currently annualizing at $560 MM. PFE has Xalkori in additional studies to broaden its indications. Other c-MET inhibitors are either marketed or in development.

NVS has a broad program underway for this molecule and lists INC280 (capmatinib) as a 2018 drug, which INCY in the conference call said would likely be for a lung cancer indication.

Because drugs of this type are already marketed and the industry is moving forward with them, I take capmatinib to be a likely royalty producer for INCY. I'm not able to guesstimate the present risk-adjusted value of the royalty stream. I'll toss out $1 B - a number pulled almost from thin air.

Then there's Iclusig

INCY has acquired marketing rights in the EU and certain other territories to this young leukemia drug from ARIAD for an upfront payment and a high royalty rate. Early sales have been slow. INCY is marketing and using Iclusig as a means of entering the client (physician and government) facing part of drug development in the EU and elsewhere.

I cannot even begin to comment as to the profit potential here. Right now this is a cost center. Presumably it's not likely to stay that way indefinitely.

Interim summary

Given today's high valuation for companies both large and small by historical standards, I look at the above opportunities as reasonable for INCY's current valuation. Not a guarantee, but not bad at all. Bari could hit big in a few years, and I think that it's possible for Jakafi/Jakavi to see sharply higher sales based on the latest 5-year survival data and increased guideline recommendations. So perhaps sales will hit the $2 B mark by 2019 and just keep rolling on. In the meantime, a large and growing revenue stream appears assured, so this stock is not a bubble stock the way, say, Valeant (NYSE:VRX) was, which has imploded nearly 95% in little more than one year.

One wants in this sort of stock to have pipeline or other exciting possibilities, though. The rest of the article goes into two ways this can be achieved if things break well. One relates to the rest of the pipeline and the other relates to a takeover possibility.

Internal pipeline could be productive

The lead drug is epocadostat, an IDO inhibitor in Phase 3 for melanoma. This is being studied with Keytruda from Merck (NYSE:MRK). It is also in Phase 1/2 studies for various solid tumors with Opdivo from BMS (NYSE:BMY) and durvalumab from AstraZeneca (NYSE:AZN).

This drug may have significant profit potential. The Street is being guided to various updated results as 2017 moves along. The Phase 3 study in melanoma may be completed by Q2 of 2018.

INCY also has a gigantic number of other molecules in, mostly, Phase 1/2 studies. From the earnings report:

Two trials of INCB54828, a selective FGFR inhibitor, in patients with bladder cancer and cholangiocarcinoma, respectively, harboring FGFR alterations are now open for recruitment.

Incyte has two BRD inhibitors in clinical trials, INCB54329 and INCB57643. Having two distinct compounds allows the Company to evaluate the clinical safety and tolerability of different pharmacokinetic and pharmacodynamic profiles within a therapeutic class.

Indication

Status Update

Ruxolitinib (JAK1/JAK2)

Graft versus host disease Pivotal program expected to begin in the fourth quarter of 2016

INCB39110 (JAK1)

Graft versus host disease Phase 1/2 fully recruited, data expected before the end of 2016

INCB39110 (JAK1)

Lung cancer Phase 1/2 in combination with osimertinib (EGFR) expected to begin in the fourth quarter of 2016

INCB52793 (JAK1)

Advanced malignancies Phase 1/2 dose-escalation

INCB50465 (PI3Kδ)

B-cell malignancies Phase 1/2 as monotherapy and in combination with INCB39110 (JAK1)

INCB54828 (FGFR)

Bladder cancer, cholangiocarcinoma Phase 2 open for recruitment

INCB54329 (BRD)

Advanced malignancies Phase 1/2 dose-escalation

INCB57643 (BRD)

Advanced malignancies Phase 1/2 dose-escalation

INCB53914 (NYSE:PIM)

Advanced malignancies Phase 1/2 dose-escalation

INCB59872 (LSD1)

Acute myeloid leukemia, small cell lung cancer Phase 1/2 dose-escalation

This list suggests impressive ongoing R&D capabilities. Might a larger company want to control them? (See next section.)

In addition, as if that's not enough, the company has a deal with the small-cap Agenus (NASDAQ:AGEN) for access to certain immuno-therapeutic antibodies. AGEN has announced dosing has begun in at least two such studies. There is also a deal with the Asian company Hengrui for access to its PD-1 antibody.

Takeover possibilities

INCY could be a perfect fit for CELG. Both companies are aggressive within identical spaces. CELG could fold the marketing of Jakafi into its organization almost overnight, and the reps promoting Jakafi now could add another CELG product to their iPads. But the deal would not come cheap, and only CELG knows how it values ownership of INCY's established and R&D assets. At the least, I look at these sorts of takeover possibilities as tending to put some floor on INCY's valuation should stocks broadly go south in an old-fashioned bear market related to, say, rising rates and tighter money.

Big Pharma might have more trouble with such an aggressive R&D program. If it did not, then the oncology-focused BMY could be interested. Obviously, NVS knows INCY better than any company, but it's not the most aggressive M&A player. Then there's always J&J (NYSE:JNJ), with its expanding oncology franchise. JNJ has both the free cash flow and balance sheet runway to handle a $30 B or so acquisition without having to then cut costs at the acquired company.

I look at the takeover possibilities as a bonus reason, but not a prime reason, to buy INCY.

GILD has been mentioned as a possible suitor for INCY. That makes no sense to me from GILD's standpoint, as GILD lags INCY's oncology product development capabilities by a substantial amount and thus would bring nothing to the table except capital that INCY can find elsewhere if it wants more. Better GILD just buy stock in INCY, say a 4.9% stake, if it likes it a lot. So we shall see on that one.

Risks

I hope it's clear that while Jakafi appears to have a secure and likely growing presence in its space and possibly one or more expanded spaces, there are no certainties as to how high this drug or the ruxo molecule can fly on a P&L basis. Beyond that, there are many clear shots on goal, but that's pretty much all.

There will be no dividend any time soon if ever; no takeover offer may arise; market liquidity could shrink as the Fed tightens and biotech could sink back into a serious bear market, taking INCY with it, easily down to the $80s again where it was all of one month ago.

So, caveat emptor.

Summary - INCY as an aggressive growth play with certain safety aspects

Warren Buffett has said that one should not be invested in the stock market unless one were prepared to ride out a 50% decline in one's equity values. That's somewhat how I look at INCY. My guess - still a guess - is that between Jakafi and baricitinib, INCY fundamentally has no more than a 50% value decline unless the stock market gets completely destroyed, or INCY goes wild with unproductive R&D. So, yes, I'd like to accumulate it more cheaply. But I've started looking at this as a first-class drug development organization that could follow the model of CELG and GILD and continue to grow beyond what's expected of it by the Street. With patience, that's one of the observations I've made in several decades in the market. Again, it can come back to a Buffett quote, that it's better to pay a higher price for shares in a great company than to get a seeming bargain in shares in a mediocre company. INCY has hit its stride and may just have a cornucopia of successful compounds making their way through the pipeline. With the less risky revenue streams highlighted in the first part of this article noted, it may be that what happens in the shorter second part that surprises the Street.

Noting that INCY's all-time high was set last year in the $130 range, I am setting that as a price goal by 2018, with the possibility that buy-out lightning could strike. Downside risk is definitely non-trivial, as much growth is embodied in INCY's valuation. Thus this is yet another patient holding, looking for the company to exceed expectations over the intermediate-to-long term. Lower share price, or a stable share price along with operational improvement, could turn me into an aggressive bull on this name - but I'm not fully there at this point purely on valuation reasons. Since CELG shareholders have done fine going with the major trend and not worrying too much about valuation, I'm long INCY and looking to add.

Trading note: this is being submitted for publication at 8:09 AM on Monday morning. I am seeing INCY trading up pre-market with a mid-point between bid and asked of $104.35. I think traders like the feedback on the 5-year data as well as, possibly, presentations about potential uses of Jakafi in other blood disease.

Thanks for reading and sharing your knowledge of this company or other comments you may wish to provide.

Disclosure: I am/we are long INCY,CELG,REGN,GILD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Not investment advice. I am not an investment adviser.