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Will Strong Jakafi Sales Drive Incyte (INCY) Q2 Earnings?

Zacks Equity Research

Incyte Corporation INCY is scheduled to report second-quarter 2019 results on Jul 30, before the market opens.

In the last reported quarter, the company beat earnings estimates by a whopping 58.97%. It missed earnings expectations thrice over the last four quarters, delivering average positive earnings surprise of 8.4%.

Why a Likely Positive Surprise?

Our proven model indicates that Incyte is likely to beat on earnings this quarter, as it has the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to be able to beat estimates.

Earnings ESP: Earnings ESP for Incyte is +3.73% as the Zacks Consensus Estimate is pegged at 48 cents, while the Most Accurate Estimate at 50 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Incyte currently carries a Zacks Rank #2, which when combined with a positive ESP makes us confident of an earnings beat.

Note, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Driving Growth

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

Jakafi sales were up 20% in the first quarter and we expect the drug to maintain momentum in the second quarter. In May 2019, the FDA approved a label expansion of Jakafi for the treatment of steroid-refractory acute graft-versus-host disease (GVHD) in adult and pediatric patients aged 12 years or older. This is the third indication, for which the drug has been approved in the United States. This should further boost sales.

The company did not provide any quarterly guidance but expects Jakafi revenues of $1,580-$1,650 million for 2019.

Incyte is working to expand the drug’s label further into additional indications. The REACH2 and REACH3 trials, evaluating steroid-refractory acute and steroid-refractory chronic GVHD, respectively, are ongoing in collaboration with Novartis. We expect investors to also focus on pipeline development. In June 2019, Incyte announced positive results from a phase II Study of ruxolitinib cream in patients with vitiligo.

We remind investors that while Jakafi sales and royalties are key components of the company’s revenue growth, Iclusig sales and Olumiant royalties also contribute to the top line. Iclusig revenues are expected to be $90-$100 million for the current year. This will also boost the company’s performance in the to-be-reported quarter.

However, concurrent with first-quarter results, Incyte announced that it has elected to no longer co-fund the development of Olumiant in order to reallocate the capital to develop its pipeline. However, the company will continue to receive royalties on global net sales of the drug, per the terms of its agreement with partner Eli Lilly.

Pipeline development will also be a key area of focus for the investors. Incyte has initiated a phase III study on its selective fibroblast growth factor receptor (FGFR) inhibitor, pemigatinib (INCB54828) in comparison with gemcitabine and cisplatin chemotherapy as a first-line therapy for patients with metastatic or surgically unresectable cholangiocarcinoma (bile duct cancer), who have activating FGFR2 rearrangements.

Share Price Performance

Incyte’s stock has gained 23.9% in the year so far against the industry’s decline of 0.5%.

Other Stocks to Consider

Here are two other biotech stocks worth considering with the right combination of elements to beat on earnings this season:

Gilead Sciences, Inc. GILD has an Earnings ESP of +3.20% and a Zacks Rank #2. It is scheduled to release financial figures on Jul 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron Pharmaceuticals, Inc. REGN has a Zacks Rank #3 and an Earnings ESP of +6.25%. The company is scheduled to release second-quarter results on Aug 6, before the market opens.

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