Incyte Stays Neutral

Zacks

We are maintaining our Neutral recommendation on Incyte Corporation (INCY) with a target price of $23.00. This is in line with the Zacks #3 Rank (Hold rating) carried by the stock in the short run.

Incyte is a Wilmington, Delaware-based drug discovery and development company focused on oral compounds to treat inflammation and cancer.

We are pleased by the November 2011 U.S. approval and subsequent launch of Jakafi for myelofibrosis (MFGLQ). Even though the target population for MF is not very high, we believe that the experience gained from marketing Jakafi should be helpful for future product launches.

The European approval of the drug (to be marketed as Jakavi) for the MF indication is on track with the Committee for Medicinal Products for Human Use (CHMP) recommending its approval. The positive opinion has triggered a milestone payment of $40 million from partner Novartis (NVS).

The amount is expected to be received shortly. A further $60 million milestone payment would be due to Incyte following the achievement of reimbursement and pricing approval in certain E.U. nations by Novartis.

Incyte also has a collaboration with another established player, Eli Lilly (LLY). We believe its association with big pharmaceutical companies will bolster the company’s financial position and experience.

However, apart from Jakafi for the polycythemia vera indication, the other candidates are several years away from hitting the market. Any hiccup in their development process will weigh heavily on the stock.

We note that Incyte suffered a setback with its sheddase inhibitor program when the development of INCB7839 was halted for metastatic breast cancer. Incyte had faced pipeline setbacks earlier, as well. The company terminated the development of a CCR5 antagonist compound INCB9471 (INCB15050) as a once daily oral treatment for HIV/AIDS.

Moreover, since Jakafi was launched for MF only in November 2011, we prefer to adopt a wait-and-watch stance regarding its sales ramp up.

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