Incyte Upped to Neutral

Zacks

We have upgraded Incyte Corporation (INCY) to Neutral from Underperform with a target price of $21.00.

Last month, Incyte announced its fourth quarter 2011 and full year results. Incyte’s fourth quarter 2011 loss of $0.44 per share was wider than the Zacks Consensus Loss Estimate of $0.40. The company earned $0.24 per share in the year-ago quarter. Results in the final quarter of 2011 were hurt primarily by higher costs. Incyte’s efforts to develop its pipeline and market its first FDA approved drug, Jakafi, led to the rise in costs.

In November 2011, the FDA cleared Jakafi to treat patients suffering from intermediate or high-risk myelofibrosis (MFGLQ), a rare bone marrow disorder. The drug was subsequently launched in the country allowing Incyte to record revenues from product sales for the first time in the final quarter of 2011. The company recorded net revenues of approximately $2 million from Jakafi sales in the final quarter of 2011. The US approval of Jakafi triggered a milestone payment of $10 million from partner Novartis (NVS).

Even though the target population for MF is not very high, as can be gauged from Jakafi’s orphan drug status in the US, we believe the approval and launch is important to Incyte as the experience gained from marketing Jakafi should be helpful for future product launches. Jakafi, which is also being studied for other indications, is under review in Europe for the MF indication. Approval would increase the sales potential of the drug. Moreover, successful label expansion of Jakafi would further boost its sales potential.

We are also encouraged by Incyte’s collaborations with established players like Novartis and Eli Lilly and Company (LLY).  These positives cause us to revert to a Neutral stance on the stock.

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