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Incyte in Neutral Lane

Zacks Equity Research

We are maintaining our Neutral recommendation on Incyte Corporation (NasdaqGS:INCY - News) with a target price of $18.00.

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 US approval of Jakafi for treating patients suffering from intermediate or high-risk myelofibrosis (:MF). Jakafi, which is also being studied for other indications, is under review in Europe for the MF indication. We are also encouraged by Incyte’s collaborations with established players like Novartis (NYSE:NVS - News) and Eli Lilly (NYSE:LLY - News). We believe the association of big pharmaceutical companies will bolster the company with much needed financial strength 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 or adverse trial results 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. We note that Incyte had faced pipeline setbacks earlier too. 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 and, therefore, retain our Neutral recommendation on the stock in the long-term. This is in line with the Zacks #3 Rank (Hold rating) carried by the stock in the short run.

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