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Wider-than-Expected Q4 Loss at Incyte

Zacks Equity Research

Incyte Corporation (INCY) reported a loss of 15 cents per share in the fourth quarter of 2013 wider than the Zacks Consensus Estimate of a loss of 9 cents. Incyte recorded earnings of 13 cents per share in the year-ago quarter. The wider-than-expected loss during the quarter was due to lower revenues.

Total revenues in the quarter declined 14.7% to $97.1 million. Revenues during the reported quarter were affected by lower contract revenues. Revenues were also short of the Zacks Consensus Estimate of $100 million.

Quarter in Detail

Total revenue comprised net product revenues, product royalty revenues, contract revenues and others. Incyte recorded net product revenue of approximately $72.9 million from Jakafi sales in the fourth quarter of 2013, up 68.3% year over year. Jakafi, Incyte’s sole marketed product, was launched in the U.S. in Nov 2011, for treating patients suffering from intermediate or high-risk myelofibrosis (MFGLQ).

Incyte has a collaborative agreement with Novartis (NVS) to market Jakafi outside the U.S. The drug has also been 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. Incyte, in collaboration with Novartis, is currently evaluating Jakafi in two phase III clinical trials (RESPONSE and RELIEF), for the treatment of patients suffering from polycythemia vera (:PV). The company intends to submit a supplemental new drug application for Jakafi for the PV indication in the first half of 2014 based on the positive results from the RESPONSE trial. Results from the RELIEF trial are expected in mid-2014. Incyte expects Jakafi’s PV indication, once approved, to contribute to the company’s top line 2015 onwards.

Incyte received product royalty revenues of $8.4 million from Novartis during the reported quarter, compared with $3.7 million in the year-ago quarter. Contract revenues declined to $15.8 million in the fourth quarter of 2013 from $66.7 million in the fourth quarter of 2012. The massive decline in contract revenues during the quarter was primarily due to milestone payments received in the 2012 quarter. Other revenues accounted for the balance.

Both research and development (R&D) expenses (up 25.5% to $75.0 million) and selling, general and administrative (SG&A) expenses (up 60.3% to $38.0 million) climbed during the quarter. While Incyte’s efforts to develop its pipeline were primarily responsible for the rise in R&D expenses, higher commercialization expenses related to Jakafi drove the company’s SG&A expenses.

2013 Results

Incyte reported a loss of 36 cents per share in 2013 narrower than the Zacks Consensus Estimate of a loss of 41 cents but wider than the year-ago loss of 34 cents per share.

Total revenues in the year increased 19.5% to $354.9 million. Revenues during the year were boosted by higher product revenues. Revenues were however short of the Zacks Consensus Estimate of $362 million.

2014 Outlook

Incyte provided its financial guidance for 2014. The company expects 2014 Jakafi net product sales in the range of $315–$335 million. The net sales guidance excludes any product royalty revenues received from Novartis on sales of Jakavi (EU trade name for Jakafi).

Incyte is also expecting a $60 million milestone payment from Novartis regarding the European pricing approval of Jakavi and around $13 million upfront payments under Incyte’s collaboration agreement with Eli Lilly and Company (LLY).

Meanwhile, R&D expenses are expected in the range of $350−$370 million and SG&A expenses in the $145−$155 million range.

Our Take

We are encouraged by the strong Jakafi sales during the fourth quarter of 2013. However, the company’s overall performance was below expectations. Incyte has a robust pipeline. Successful development and commercialization of these candidates should drive growth. We expect investor focus to remain on Jakafi’s performance in the coming quarters.

Incyte, a biopharmaceutical company, currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the bio pharma sector include Alexion Pharmaceuticals, Inc. (ALXN). Alexion holds a Zacks Rank #1 (Strong Buy).

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