Even as a relatively young drugmaker, Incyte (INCY) is already creating buzz because of its recently approved blood cancer treatment -- and its potential as a takeover target. The stock has been in an uptrend of late, climbing to $16.87 a share on Jan. 13, 2011, from $11.80 on Nov. 25. Some analysts see the stock driving up to as high as $25 over the next 12 months. The stock hit a 52-week high of $21 last year.  

  

Much of the stock's recent strength has been due to the Food and Drug Administration's approval on Nov. 16, 2011, of Incyte's chief product, Jakafi, a drug for the treatment of high-risk myelofibrosis, a life-threatening type of blood cancer. Incyte is partnering with Novartis (NVS) for the marketing of the drug outside the U.S. starting later this year.

 

Also creating much excitement is Incyte's other drug, a rheumatoid arthritis treatment. The drug, which is being developed in partnership with Eli Lilly (LLY), has completed phase 2 clinical studies, and some analysts contend it is a potential blockbuster.

 

"All these (have) put Incyte on the radar screen of some Wall Street pros as a likely  takeover target," said John McCamant, the editor of the Medical Technology Stock Letter, in San Francisco. The huge prospects of Incyte's Jakafi and other drugs it is developing (have) prompted the Medical Technology Stock Letter to choose Incyte as its top stock selection for 2012," McCamant said.

 

He expects Jakafi to get approval in Europe sometime this year. So far, Incyte's Jakafi is the only approved drug for this type of blood cancer, McCamant said. Incyte is already conducting clinical trials to expand the patient base for Jakafi to include treatment for people suffering from polycythemia and thrombocythemia, which McCamant says could double the drug's market opportunity. The company has priced the drug at $84,000 a year, he said.

 

Data from the phase 2 clinical studies on Incyte's rheumatoid arthritis drug in which Eli Lilly is a partner is expected to be released in mid-2012, said Joshua Schimmer, a drug analyst at the investment firm Leerink Swann, who rates the stock as "outperform" with a 12-month target of $20. Incyte discussed the prospects of Jakafi and some details on its other drugs in development at the annual J.P. Morgan Global Healthcare Conference, held in San Francisco on Jan. 9.

 

Medical Technology Stock Letter's McCamant said Incyte is developing an oral drug  for rheumatoid arthritis, which he expects would have a huge market potential. He says Incyte expects the drug to replace the intravenous TNF inhibitors that are currently the standard of care for the treatment of the disease. The current TNF market is estimated at more than $20 billion, and Incyte's oral drug could capture a large part of that market, notes McCamant.

 

He argues that although Big Pharma companies are constantly looking for acquisitions to enhance their new-product pipeline, they have become "extremely risk-averse" when it comes to going after the smaller drug makers. "They now tend to wait until after the regulatory risk is removed with a drug approval before pulling the trigger" in pursuing an acquisition, McCamant said. That should put Incyte on their radar screen, he added.

 

Incyte has yet to post a profit. Last year, analysts estimate, it lost $1.60 a share on revenue of $84 million. In 2010, the company posted a loss of 26 cents a share on revenue of $168.9 million.  

 

In a buyout deal, McCamant figures, Incyte is worth $25 to $30 a share. The most logical suitors or acquirers, McCamant said, are its current partners, Eli Lilly and Novartis. He figures it's likely that either will make a move on Incyte sometime this year.



Gene Marcial wrote the column “Inside Wall Street” for Business Week for 28 years and now writes for MSN Money’s Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.