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Revenues Rise at Incyte

Zacks Equity Research

Incyte Corporation’s (INCY) second-quarter 2012 earnings of 3 cents per share compared favorably with the year-ago loss of 41 cents per share. Results were boosted by higher revenues. The Zacks Consensus Estimate hinted at breakeven earnings.

Total revenues in the reported quarter jumped to $86.5 million from $16.8 million in the year-ago quarter. Revenues were boosted by the presence of Jakafi sales and milestone payment received from Novartis (NVS). Jakafi, Incyte’s sole marketed product, was launched in the US in November 2011, for treating patients suffering from intermediate or high-risk myelofibrosis. Revenues were above the Zacks Consensus Estimate of $85 million.

Total revenues comprised net product revenues, contract revenues and license and royalty revenues.

Incyte recorded net product revenues of approximately $29.7 million from Jakafi sales in the drug’s second full quarter in the market. Jakafi sales were up more than 53.9% sequentially.

Contract revenues climbed to $56.7 million from $16.7 million. We note that contractual revenues include a $40 million milestone payment from Novartis. This milestone payment was triggered by a positive opinion issued by the Committee for Medicinal Products for Human Use (CHMP) regarding the EU approval of Jakafi.

License and royalty revenues were $78 million, up 5.4% from the year-ago quarter.

Both research and development (R&D) expenses (up 12.0% to $51.6 million) and selling, general and administrative (SG&A) expenses (up 66.3% to $19.7 million) 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 second 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 expects net sales of Jakafi in the 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 #2 Rank (Buy rating) in the short run.

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