Top picks 2012: Incyte

Treatments for myelofibrosis and arthritis could make biotech a takeover target for Big Pharma.

By TheStockAdvisors Jan 6, 2012 1:56PM
Image: Pills (© Digital Vision Ltd./SuperStock/SuperStock)This post is one in a series in which over 50 newsletter advisors share their Top Picks for 2012.

By John McCamant, The Medical technology Stock Letter

Incyte (INCY) is our top stock selection for 2012.  The Delaware company is a leader in developing small molecule drugs for cancer and inflammation. 

The prime jewel in Incyte's drug development portfolio is Jakafi, a JAK inhibitor approved by the FDA in November for myelofibrosis (MF), a potentially life-threatening blood cancer.

European approval is imminent and will provide a nice catalyst in 2012. There is basically no competition in treating MF, as before the FDA’s recent action there were no drugs approved for the cancer.

Importantly, ongoing trials to expand the potential patient base into polycythemia vera (PV) and essential thrombocythemia (ET) could more than double the market opportunity.

Incyte has priced Jakafi at $84,000 a year, which came in well above Wall Street’s expected range of $40,000 to $60,000. This aggressive pricing should help the company meet revenue expectations during launch.

Incyte recently presented very strong Phase III data for Jakafi at a meeting of the American Society of Hematology (ASH). The company also hosted multiple education sessions, which were packed with doctors interested in the new orally available cancer drug. 

These positive sessions and strong data should help Jakafi gain rapid adoption by doctors, and should help avoid the dreaded slow launch that has plagued many new drugs. The bottom line is Incyte had a very productive ASH meeting, pushing aggressively to position Jakafi for maximum sales. 

Incyte is also working on a blockbuster treatment for rheumatoid arthritis (RA) -- LY3009104 (INCB28050). The drug is being developed in partnership with Eli Lilly. The companies reported in October that their six-month, dose-ranging Phase IIb trial in patients with RA had completed enrollment. Data is expected in the first half of 2012.

There is huge potential for an oral drug candidate that would replace intravenous TNF inhibitors, the current standard of care for the treatment of RA. The market for TNF inhibitors is over $20 billion and Incyte's drug could capture a large portion of this. 

Strong data for ‘050 would serve as a significant catalyst for Incyte’s share price as Wall Street has so far assigned only modest value to the program.

Finally, we would add that if you need an additional reason to own Incyte, the company has begun to appear on some Wall Street lists as an acquisition candidate. Incyte's CEO sold his previous company, DuPont Pharma, for a significant premium after launching a successful drug. An acquisition of Incyte would almost certainly also come at a handsome premium.

While many biotechs are mentioned as takeover targets, it is important to note that Big Pharma has become extremely risk-averse and waits until after regulatory risk is removed with a drug approval before pulling the trigger on an acquisition.

This should put Incyte squarely in their sights. INCY is a buy under $17. 

Steven Halpern's offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.

Tags: INCY


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