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Background
Since December, I had a positive view on Incyte (NASDAQ:INCY). As part of my last two articles (Incyte: All Attention On Opzelura, Incyte: The Right Time To Buy The Stock), I analyzed the company’s investment case. While the company’s stock has fallen 10% since the first article was written, it doesn’t look so bad in comparison with the stock market dynamic. My positive opinion about the company didn’t change so far. In this article, I will update the company’s investment case based on the last quarterly results. Looking ahead, I note that in anticipation of important drivers, the company’s shares look oversold. Let’s start the analysis of financial statements with general financial indicators. Then we will move on to the analysis of individual drugs.
The company’s total revenue was $733 million (+20% YoY, 2% worse than expected). Operating profit of $117 million (6% better than expected). Net earnings per share was at $0.17 (63% worse than expected). The total volume of royalties increased by 23% YoY. Jakavi royalties from Novartis were $71 million (15% lower than expected). Tabrecta royalty was $3 million (13% worse than expected). As part of the partnership with Eli Lilly (LLY), Olumiant royalties totaled $48 million (13% worse than expected). The management raised the lower bound for 2022 revenue forecast from $2.3 billion to 2.33 billion (range $2.33-2.4 billion), implying 11% YoY growth (consensus $2.38 billion).
Jakafi
US Jakafi revenue rose 17% YoY to $544 million (2% lower than expected). Growth was driven by high demand in the indications of myelofibrosis and polycythemia vera, as well as a successful launch in the indication of chronic GVHD. The number of new patients in GVHD increased by 25% YoY. The growth was mainly due to cGVHD. Let me remind you that starting from 2026, the drug runs out of patents, which puts pressure on the stock. There are two possibilities for keeping drug revenue from falling. First, the company expects the drug will be approved in a once-daily (now twice-daily) form in early 2023. Secondly, the company is exploring the possibility of combining the drug in combo therapies. The company is conducting several studies with a combination of this drug. The ruxolitinib + parsaclisib combo is in the second phase study as first-line therapy in patients not responding to Jakafi treatment (the results are expected in 2023). Data on ruxolitinib + INCB57643 (BET inhibitor) and ruxolitinib + INCB00928 (ALK inhibitor) combination therapies are expected in the second half of the year. Both are in Phase 1 study.
Opzelura
In the first quarter, 28,000 new patients started drug treatment. Opzelura’s market share among new patients not responding to steroid treatment exceeds 12%. Since the launch, 57,000 people have already been treated with the drug. In the first quarter, 68 thousand prescriptions were written (about 20% are refills). As a result, Opzelura’s gross revenue was $90 million. Net sales were $13 million (16% better than expected). Gross/net price discount for the quarter decreased from 92% to 86%. This discount is associated with Incyte’s co-financing program, which covers almost the entire cost of the drug. The company plans to expand reimbursement coverage. That should bring down the discount to the level of 40-50% in Q3-Q4. Since the last reporting, the company increased a number of covered lives by 75 million to 146 million. The company is launching a second Opzelura manufacturing plant and continues to work on fixing the drug’s texture problem.
Vitiligo’s opportunity
The next driver I see is the possible approval of ruxolitinib for the treatment of vitiligo (expected in the US by July 18, in Europe by the end of the year). Management noted that 1.5 million people are living with vitiligo in the US and approximately 2 million in Europe. Management expects 150-200 thousand people will seek treatment with ruxolitinib, if approved. According to management, patients with vitiligo will need 10 tubes per year, while atopic dermatitis treatment requires only 3-4 tubes. 10 tubes a year translate into approximately $100 million in revenue for every 10,000 patients. With a potential number of patients of 150-200 thousand peak revenue could reach $1.5-2 billion in revenue. In addition, the company is studying another drug, INCB54707, for the treatment of vitiligo. Phase 1 data of this study is expected in the second half of 2022.
Other drugs
Let’s briefly go over the results of other drugs. Monjuvi sales were $19 million in the US (+21% YoY) driven by growth in second-line of therapy and longer duration of treatment. Outside the U.S., Monjuvi generated $5 million in sales, due to the lunch in Germany. In other countries, the company is working to get reimbursement. Sales of Pemazyre rose 34% to $18 million (14% worse than expected), mainly due to a longer duration of therapy. Pemazyre’s sales were $18 million (14% worse than expected), Iclusig’s sales were $26 million (7% worse than expected).
The risks and final thoughts
Despite the possibility of further correction of indices against the background of high inflation and tightening of monetary policy, the healthcare sector looks attractive, as it is more stable in times of recession. The sector attractiveness is confirmed by high inflows into the sector in the last month. Net inflows into the sectoral ETF (XLV) were the best compared to other sectoral ETFs. In current times, I prefer positive cash flow stories (except for a few growth companies). Taking this into account, Incyte remains an interesting investment story, especially given the launch of Opzelura and the possible approval of ruxolitinib for the treatment of vitiligo. There is also the possibility that the company will become the target of a takeover. I believe we can see a substantial increase in M&A activity in the sector. There are several reasons for this, which I will try to describe about in a separate article. Despite all the prospects, investments in Incyte are not risk free. So before investing, it is better to familiarize yourself with the risks. They are detailed in the annual report (10-K). As a consequence of all the above, I maintain my positive opinion on the company’s shares.
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