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Incyte Narrows Loss

Zacks Equity Research

Incyte Corporation’s (INCY) third-quarter 2012 loss of 17 cents per share was narrower than the year-ago loss of 42 cents per share and the Zacks Consensus Estimate of a loss of 22 cents per share. The narrower loss was attributable to higher revenues recorded in the third quarter of 2012.

Total revenues in the reported quarter jumped to $60.5 million from $16.8 million in the year-ago quarter. Revenues were boosted by the presence of Jakafi sales. Jakafi, Incyte’s sole marketed product, was launched in the US in November 2011, for treating patients suffering from intermediate or high-risk myelofibrosis (MFGLQ). Revenues barely missed the Zacks Consensus Estimate of $61 million.

Total revenues comprised net product revenues, contract revenues and other revenues.

Incyte recorded net product revenues of approximately $43.7 million from Jakafi sales in the drug’s third full quarter in the market. Jakafi sales were up more than 47.1% sequentially.

Incyte has a collaborative agreement with Novartis AG (NVS) to market Jakafi outside the US. The drug is now approved by the European Commission to treat adults suffering from primary MF, post-polycythemia vera MF or post-essential thrombocythemia MF.

We note that Jakafi is being studied for additional indications as well. Novartis is currently evaluating Jakafi in two phase III clinical trials on the drug, for the treatment of patients suffering from polycythemia vera (:PV). The company expects to submit a supplemental new drug application in 2014.

Jakafi is also being evaluated in a phase II trial in combination with Roche Holding AG’s (RHHBY) Xeloda for the treatment of refractory metastatic pancreatic cancer. Final results from the study are expected in the second half of 2013.

Contract revenues remained flat year over year at $16.7 million. Other revenues were $60 million, up 33.3% from the year-ago quarter.

Both research and development (R&D) expenses (up 12.3% to $50.1 million) and selling, general and administrative (SG&A) expenses (up 43.7% to $20.5 million) climbed up during the quarter. Incyte’s efforts to develop its pipeline were primarily responsible for the rise in R&D expenses in the third quarter of 2012. Higher costs related to the marketing of Jakafi were primarily responsible for pushing the SG&A costs up.

2012 Outlook

Apart from disclosing its financial results, Incyte also provided guidance for 2012. The company narrowed its guidance for Jakafi sales to the range of $130–$135 million from the previous range of $120 - $135 million.

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 stock carries a Zacks #3 Rank (Hold rating) in the short run.

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