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Can Jakafi Performance Drive Incyte's (INCY) Q4 Earnings?

Zacks Equity Research

Incyte Corporation INCY is scheduled to report fourth-quarter 2017 results on Feb 15, before the market opens.

Last quarter, the company beat estimates by 183.33%.

Incyte’s earnings track record has been mixed so far. Of the last four quarters, the company surpassed expectations in three and missed estimates in one.

Overall, Incyte delivered an average positive surprise of 42.9%.

 

 

Incyte’s stock lost 33% in the last six months, worse than the industry’s decline of 5.8%.

Let’s see, how things are shaping up for this quarter.

Why a Likely Positive Surprise?

Our proven model shows that Incyte is likely to beat on earnings this quarter because it has the right combination of the two key ingredients. A stock needs to have both a positive Earnings ESP  and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP:  Incyte has an Earnings ESP of +18.86%, representing the difference between the Most Accurate estimate (loss of 40 cents per share) and the Zacks Consensus Estimate (loss of 49 cents). A positive ESP hints at an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank:  Incyte has a Zacks Rank #3, which increases the predictive power of ESP. Further, combined with a positive ESP, chances of an earnings beat are usually pegged higher.

We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Incyte Corporation Price and EPS Surprise

 

 

Incyte Corporation Price and EPS Surprise | Incyte Corporation Quote

 

Factors Driving the Growth

Incyte’s lead drug, Jakafi (ruxolitinib), is a first-in-class JAK1/JAK2 inhibitor, approved for the treatment of patients with polycythemia vera (PV), patients with intermediate or high-risk myelofibrosis (MF), including primary MF, post-PV MF, and post-essential thrombocythemia MF. While Incyte markets the drug in the United States, it is marketed by Novartis NVS as Jakavi outside the country.

Incyte continues to gain traction by Jakafi’s performance. Jakafi sales are being driven by patient demand. Jakafi was included as a recommended treatment for patients with myelofibrosis and patients with polycythemiavera in the latest National Comprehensive Cancer Network (“NCCN”) Clinical Practice Guidelines in Oncology for myeloproliferative neoplasms (MPNs) in July 2017. This is likely to boost the demand further.

Based on strong performance in the first nine months of 2017, the company upped guidance for Jakafi and now expects revenues in the range of $1,125-$1,135 million, up from the earlier projected range of $1,090-$1,120 million.

The company is also working to expand the drug’s label. Results from a phase III trial, REACH3 evaluating Jakafi as a treatment for patients with steroid-refractory chronic graft-versus-host disease (“GVHD”) is expected in the first half of 2018. Assuming positive results, Incyte plans to submit a sNDA seeking accelerated approval of Jakafi in this indication in 2018. Further updates are expected along with the fourth-quarter earnings call.

We remind investors that while Jakafi sales and royalties are a key component of Incyte’s revenue growth, Iclusig sales and Olumiant royalties are also contributing to the top line.

In February 2017, the European Commission approved Olumiant for patients with rheumatoid arthritis. The approval triggered a $65-million payment to Incyte from Eli Lilly LLY along with additional potential milestone payments, as well as royalties on sales of Olumiant. The approval provides Incyte with a further valuable source of revenues, given the potential for milestones and royalties under the company’s license agreement with Eli Lilly. Olumiant is being studied for additional indications as well — atopic dermatitis (phase IIa) and systemic lupus erythematosus (phase II).

Incyte’s pipeline also holds promise. The phase III trial, ECHO-301, evaluating epacadostat plus Keytruda in patients with unresectable or metastatic melanoma is now fully-recruited and data are expected in the first half of 2018.

R&D expenses are now expected in the range of $1,250-1,300 million, up from the earlier forecast of $1,050-1,150 billion due to the acceleration of the phase III plans for epacadostat. SG&A expenses are expected in the range of $340-$360 million.

A Stock to Consider

Here is one other health care stocks worth considering with the right combination of elements to beat on earnings:

Exelixis EXEL, which is expected to release fourth-quarter results on Feb 26, has an Earnings ESP of +21.98% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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