Loss at Incyte Widens on Higher Costs

Zacks

Incyte Corporation’s (INCY) first quarter 2012 loss of 36 cents per share was wider than the year-ago loss of 21 cents per share. Results in the first quarter of 2012 were hurt primarily by higher costs. The Zacks Consensus Estimate hinted at a loss of 45 cents per share.

Quarter in Detail

Total revenues in the reported quarter increased 13.2% to $36.2 million. Revenues were boosted by the presence of Jakafi sales. Jakafi, Incyte’s first marketed product, was launched in the US in November 2011, for intermediate or high-risk myelofibrosis.

Revenues, however, beat the Zacks Consensus Estimate of $25 million. Total revenues comprised of net product revenues, contract revenues and license and royalty revenues.

Contract revenues plummeted 47.3% to $16.7 million during the reported quarter. We remind investors that revenues in the first quarter of 2011 were boosted by the presence of milestone payments to the tune of $15 million from partner Novartis (NVS). Incyte recorded net revenues of approximately $19.3 million from Jakafi sales in the drug’s first full quarter in the market. License and royalty revenues accounted for the balance.

Both research and development (R&D) expenses (up 35.0%) and selling, general and administrative (SG&A) expenses (up 97.7%) were on the upswing during the quarter. The company’s efforts to develop its pipeline coupled with higher stock-based compensation expenses pushed up the R&D expenses in the first quarter of 2012. Higher costs related to the marketing of Jakafi was primarily responsible for pushing the SG&A costs up.

2012 Outlook

Apart from disclosing financial results, Incyte also provided guidance for 2012. The company increased the revenue guidance to $107 million from $67 million, excluding Jakafi sales and any milestone payments.  

The company increased the non-product revenue guidance following the positive opinion issued by the Committee for Medicinal Products for Human Use of the European Medicines Agency regarding Jakafi approval for treating adults suffering from primary post-polycythemia vera or post-essential thrombocythemia myelofibrosis in the EU. The favorable opinion triggered a $40 million milestone payment from partner Novartis.

Our Recommendation

We believe that investor focus will be on the market performance of Jakafi going forward. Currently, we have a Neutral stance on Incyte in the long run. The company carries a Zacks #3 Rank (Hold rating) in the short run.

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