Maintaining Our $105 Incyte FVE Following In-Line Q2, Opzelura Poised to Ramp Up in the Second Half

Incyte reported a solid second quarter with results in-line with our estimates, and we're not making any significant changes to our $105 per share fair value estimate. U.S. sales of the firm's key hematology drug Jakafi grew 13% to $598 million as demand increases in several approved indications, and we've slightly increased our expectations for full-year sales as a result. The launch of the firm's topical JAK inhibitor Opzelura in atopic dermatitis appears to be going well ($17 million in sales in the quarter), although visibility on true demand and conversion of patients from free drug samples to paid prescriptions is still murky. We expect sales to expand significantly in the second half of the year as more hurdles to reimbursement have been recently lifted, and as the drug launches in vitiligo, a second indication that was just approved in July. We're encouraged with Incyte's progress building a dermatology business, extending growth for its hematology business, and investing in the early-stage oncology pipeline, which includes oral PD-L1 therapies as well as potentially differentiated combination regimens, like CD73 and adenosine therapies, which should have data later this year. We think the firm's portfolio and strategy continue to warrant a narrow moat, and shares look undervalued at recent prices.