Insights on Incyte: A bet on biotech

Progress in treating myelofibrosis and rheumatoid arthritis is boosting the outlook - and takeover prospects - for this biotech.

By TheStockAdvisors Feb 29, 2012 9:57AM
By John McCamant, The Medical Technology Stock Letter

Incyte (INCY) is poised for a very productive year, as the company will continue the launch of Jakafi -- the first FDA-approved treatment for myelofibrosis a rare bone marrow disorder.

The company will also prepare to present very important rheumatoid arthritis data for INCB28050, the JAK1 and JAK2 inhibitor partnered with Lilly, whose Phase IIb trial in rheumatoid arthritis (RA) patients is nearing completion.

The company recently released the Q4 2012 financials. The net loss for Q4, was $55.1 million, compared to net income of $32.5 million for the same period in 2010. Total revenues for Q4, were $28.9 million vs. $85.9 million. The decrease was primarily the result of two milestone payments.

During the conference call, the majority of the questions concerned the launch of Jakafi. INCY was intentionally very vague about specific Jakafi launch trends and refused to provide 2012 guidance, arguing that it is far too early to make any projections.

We think this is the wise and prudent approach as Wall Street expectations need to be managed to help avoid unnecessary disappointments. 

As to '050 for RA, ideally, we expect the three months and six-month data will be presented at EULAR (June 6-9) and the six month data at ACR (November 9-14). All signs are pointing to positive data as plans for the Phase III are underway and will start later this year. 

Also adding to our confidence is that fact that INCY recently exercised their co-development option for RA. This means that INCY’s spending on the program will go up – they are now responsible for funding 30% of the associated future development cost for RA.

As a result of this, their tiered royalties have increased significantly and now range from 20% up to the high 20s.

In addition, Lilly recently began a 240 patient, randomized, double-blind, placebo-controlled, dose-ranging study to explore the efficacy and safety of ‘050 in adults with moderate to severe psoriasis, another autoimmune condition. 

While timing will of course be dependent on patient enrollment, we hope to see data for the primary end point in the first half of 2013.  

We think that ‘050 has so much potential that we the possibility remains that Lilly or another Big Pharma may swoop in and acquire INCY before they release the ‘050 data in RA. 

A pill that addresses a $10+ billion market that is dominated by injectable drugs has the potential be an instant blockbuster. 

The key for the acquiring company may be to move before the ‘050 data is released, since strong data could cause INCY’s stock price to double. We rate INC a buy under $17.

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Tags: INCY
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