Company Reports

Incyte’s product and royalty revenue grew 13% in the fourth quarter, with hematology drug Jakafi (sales up 7% in the U.S.) and dermatology drug Opzelura (78% growth) standing out as the biggest drivers of growth. These results and 2024 guidance are both relatively in line with our expectations, and we’re maintaining our $88 per share fair value estimate. We see shares as undervalued, with the market failing to recognize the potential in Incyte’s pipeline. Incyte ended the year with $3.7 billion in cash, which it could also use to supplement its portfolio with bolt-on acquisitions as the Jakafi patent expiration in 2028 starts to enter the radar of investors. We think the firm’s Jakafi franchise, as well as new launches like Opzelura, secure Incyte a narrow moat.

Incyte’s total revenue grew 12% in the third quarter, driven by hematology drug Jakafi and topical autoimmune disease drug Opzelura. Management largely maintained its guidance for the full year, only slightly narrowing Jakafi U.S. sales guidance to a range of $2.59 billion-$2.62 billion. We maintain our $88 per share fair value estimate, and shares look undervalued, as we think the market is failing to recognize potential in Incyte’s pipeline. Incyte ended the quarter with $3.5 billion in cash, which it could also use to supplement its portfolio with bolt-on acquisitions as the Jakafi patent expiration in 2028 starts to enter the radar of investors. We think the firm’s Jakafi franchise as well as new launches like Opzelura secure Incyte a narrow moat.

We’re maintaining our $88 fair value estimate for Incyte following a strong second-quarter performance, particularly for two key drugs in the firm’s portfolio. Incyte reported 25% product revenue growth, with sales of hematology drug Jakafi growing 14% to more than $682 million and the Opzelura launch in atopic dermatitis and vitiligo resulting in sales surpassing $80 million. Management tightened its 2023 Jakafi U.S. sales guidance to the high end of the previous range ($2.58 billion-$2.63 billion); our estimate sits at $2.63 billion. While inventory drove some of the strong Jakafi sales, demand is still growing well, and the launch of GSK’s potentially competing myelofibrosis drug has been delayed probably until the fourth quarter. While Incyte’s regulatory delays with its once-daily version of Jakafi have been disappointing, we expect the firm to still easily launch the drug ahead of the 2028 patent expiration for twice-daily Jakafi. We see more uncertainty around potential single-tablet regimens combining Jakafi with other drugs to improve efficacy, although we think the firm’s ALK2 inhibitor has potential in first-line myelofibrosis, if data continues to improve with dose escalation. We think the shares look slightly undervalued at recent prices. We’re bullish on the firm’s potential to expand further into immunology as Opzelura launches in multiple indications and geographies and pipeline drug povorcitinib advances in trials. We think the Jakafi franchise as well as new launches like Opzelura secures Incyte a narrow economic moat.

Incyte has build a solid foundation over the past decade with hematology drug Jakafi, and the approval of the same active ingredient as oral dermatology drug Opzelura is expanding the firm's focus to new therapeutic areas. We think the strategy to find more effective combination therapies in hematology and build a larger oncology and dermatology portfolio is solid, although we're waiting for key data before assuming the firm can grow through Jakafi's patent expiration in 2028.

We’re maintaining our $88 fair value estimate for Incyte following first-quarter results that were relatively in line with our expectations, despite sales for both hematology drug Jakafi (up 7% year over year to $580 million in the U.S.) and launching topical immunology drug Opzelura ($57 million) that were slightly lower than we had forecast. First-quarter sales are typically weaker as co-pay assistance from Incyte counters the unmet deductibles in the new insurance plan year, although this quarter was also hit by lower Jakafi wholesaler inventories as well as rapidly increasing Opzelura sales in the lower-priced Medicaid channel. We think fundamental demand for both products looks strong, and we continue to see strong peak sales for both Opzelura ($2 billion) and U.S. Jakafi ($3 billion in 2027). We think shares look slightly undervalued at recent prices, as we’re bullish on the firm’s potential to expand further into immunology with Opzelura and pipeline drug povorcitinib. We’re more cautious on the potential for Incyte to refresh its hematology franchise, particularly given the recent failure of combination trials of Jakafi and parsaclisib, delays in the approval of a once-daily Jakafi to be used in future combination regimens, and the competitive landscape for lymphoma drug Monjuvi. In addition, the upcoming potential launch this year of GSK’s competing myelofibrosis drug momelotinib could slightly pressure Jakafi sales. However, we’re closely watching updates for ALK2 and BET inhibitor combination regimens expected later this year to get a sense of their potential to help revitalize Incyte’s hematology arm heading into the late 2020s. We think the firm’s Jakafi franchise as well as new launches like Opzelura secure Incyte a narrow moat. Due to Incyte’s steady Jakafi sales growth and the firm’s recent diversification into immunology as Opzelura gains traction in atopic dermatitis and vitiligo, we’re lowering our Uncertainty Rating from High to Medium.

Incyte has build a solid foundation over the past decade with hematology drug Jakafi, and the approval of the same active ingredient as oral dermatology drug Opzelura is expanding the firm's focus to new therapeutic areas. We think the firm's strategy to find more effective combination therapies in hematology and build a larger oncology and dermatology portfolio is solid, although we're waiting for key data before assuming the firm can grow through Jakafi's patent expiration in 2028.

Incyte’s product revenue grew 18% in 2022, driven largely by steady double-digit growth of the firm’s core hematology drug Jakafi (up 13%). Management guidance for 2023 U.S. Jakafi sales of $2.53 billion-$2.63 billion looks in line with our own estimates, despite the incorporation of a new competitive threat in myelofibrosis, and the launch of topical treatment Opzelura in atopic dermatitis and vitiligo appears to be accelerating, with supply issues resolved and discounts falling to more sustainable levels. We’re concerned about the growth trajectory of other products in Incyte’s portfolio, and we’re lowering our fair value estimate to $88 from $105. We think shares look relatively fairly valued at recent prices, and that the firm’s Jakafi and growing dermatology business continue to support a narrow moat.

Incyte has build a solid foundation over the past decade with hematology drug Jakafi, and the approval of the same active ingredient as oral dermatology drug Opzelura is expanding the firm's focus to new therapeutic areas. We think the firm's strategy to find more effective combination therapies in hematology and build a larger oncology and dermatology portfolio is solid, although we're waiting for key data before assuming the firm can grow through Jakafi's patent expiration in 2028.

Incyte reported solid third-quarter results driven by continued growth of hematology drug Jakafi as well as accelerating growth for new dermatology drug Opzelura, and we're maintaining our $105 fair value estimate. Product sales grew 20% in the quarter, with 13% growth in U.S. Jakafi sales and $38 million in sales of topical drug Opzelura in its new atopic dermatitis and vitiligo indications in the U.S. While sales of the drug are still transitioning from free drug and discount programs, we think demand looks strong (Opzelura is already topping new prescriptions in atopic dermatitis), and we continue to model peak annual sales approaching $2 billion for the drug. Incyte is also continuing to build a larger dermatology pipeline. First, oral JAK1 drug povorcitinib is poised to start phase 3 in hidradenitis suppurativa by the end of the year and is in phase 2 testing in other skin conditions, including prurigo nodularis and the 30% of vitiligo patients who have more extensive disease (Opzelura focuses on patients with body surface area of less than 10%). Second, Incyte is in the process of acquiring Villaris Therapeutics and IL-15 receptor beta antibody auremolimab, which could be complementary to other vitiligo programs and is poised to enter clinical trials in 2023.

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.

We're maintaining our $105 per share fair value estimate for Incyte following solid first-quarter results. Incyte's top line grew 21% in the quarter, largely driven by U.S. sales of blood disorder drug Jakafi (up 17%) and royalties from Eli Lilly on immunology drug Olumiant (up 49%, benefiting from COVID-19-related usage). Management only slightly narrowed its guidance for U.S. Jakafi sales for 2022 to $2.33 billion-$2.4 billion (from $2.3 billion-$2.4 billion). 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, that 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.

We're lowering our fair value estimate for Incyte to $105 per share from $116 after factoring in slightly steeper declines in Jakafi sales following 2028 patent expiration. We now assume U.S. sales of Jakafi peak at $3.1 billion in 2027, with double-digit declines beginning in 2028 and roughly 30% annual declines from 2029 forward, as lifecycle management efforts and combination regimens may only partly counter steep declines due to generic entrants. Jakafi remains a key pillar of Incyte's narrow moat, although we see the firm's growing portfolio and pipeline as capable of continuing to support strong ROICs beyond Jakafi's patent expiration.

Incyte's lead drug, Jakafi, initially gained traction in 2011 as the only drug approved for severe myelofibrosis, a rare blood disorder. Jakafi's stronghold of the MF market is likely to continue, although new drugs are entering the market for subsets of the population. Incyte expanded Jakafi’s label to polycythemia vera (2014), steroid refractory acute graft versus host disease (2019), and chronic GvHD (2021) should together push peak U.S. sales to nearly $3.5 billion.

We're maintaining our $116 fair value estimate for Incyte following fourth-quarter results that were in line with our estimates. While we've slightly raised our operating expense assumptions for 2022 and beyond, and we've reduced our assumed sales for pipeline oncology drug parsaclisib (due to Incyte's withdrawal of its initial filing in lymphoma), we've also lowered our assumed tax rate for Incyte, as we no longer predict significant U.S. tax reform during Biden's term, countering any impact on our fair value estimate.

We're maintaining our $116 per share fair value estimate for Incyte following third-quarter results that were in line with our expectations, and we remain bullish on the firm's ongoing launches of Jakafi in chronic graft versus host disease, topical Opzelura in atopic dermatitis, and blood cancer drug Minjuvi. While Jakafi's continued growth forms the basis of our narrow moat rating, we see these newer pipeline therapies contributing to the firm's positive moat trend.

We're lowering our fair value estimate for Incyte to $116 from $120 following second-quarter results that were in line with our expectations, as pandemic-related pressure on U.S. sales of hematology drug Jakafi appear to be abating (U.S. sales were up 12% to $529 million). We think Incyte's differentiated therapy Jakafi as well as a growing portfolio in hematology and immunology continue to support a narrow moat. That said, we're making adjustments across our coverage for potential U.S. tax reform and a 26% probability-adjusted tax rate effective in 2022, and we raised our assumed tax rate for Incyte to 22% beginning next year. In addition, we think that Incyte is more exposed than many biopharma firms to potential U.S. drug pricing policy reform, so we’ve included a 50% probability of a 2% step-down in sales for U.S. Jakafi in 2023 due to potential Medicare Part D redesign, as well as an additional 6% step-down for drug price inflation caps in Medicare in our bear-case scenario.

Incyte's lead drug, Jakafi, initially gained traction in 2011 as the only drug approved for severe myelofibrosis, a rare blood disorder. Jakafi's stronghold of the MF market is likely to continue, especially after leading competitor drugs have left the playing field after lackluster pivotal trial data. Incyte expanded Jakafi’s label to polycythemia vera in late 2014 and steroid refractory acute graft versus host disease in May 2019, and it has positive recent Jakafi data in chronic GvHD, which should together push peak U.S. sales over $3 billion.

We're maintaining our $120 fair value estimate for Incyte following first-quarter results that were slightly below our expectations, reflecting continued COVID-19-related pressure on U.S. sales of hematology drug Jakafi. We think recovery in patient demand in March and management's decision to maintain prior full-year guidance for Jakafi sales bode well for growth for the remainder of the year, and we're only slightly lowering our own estimate for 2021 U.S. Jakafi sales from $2.2 billion to $2.1 billion. Sales of Jakafi in the U.S. grew 1% in the quarter to reach $466 million, as COVID-19-related stocking in the first quarter of last year and increased discounting this quarter were countered by demand growth. Incyte's total revenue grew 6%, driven by the launch of Pemazyre in cholangiocarcinoma as well as double-digit royalty growth from international sales of Jakavi (Novartis) and global sales of immunology drug Olumiant (Lilly). We think Incyte's differentiated therapy Jakafi as well as a growing portfolio in hematology and immunology continue to support a narrow moat.

Incyte's lead drug, Jakafi, initially gained traction in 2011 as the only drug approved for severe myelofibrosis, a rare blood disorder. Jakafi's stronghold of the MF market is likely to continue, especially after leading competitor drugs have left the playing field after lackluster pivotal trial data. Incyte expanded Jakafi’s label to polycythemia vera in late 2014 and steroid refractory acute graft versus host disease in May 2019, and it has positive recent Jakafi data in chronic GvHD, which should together push peak U.S. sales over $3 billion.

We're raising our Incyte fair value estimate to $120 per share from $111 following solid 2020 results that were slightly ahead of our expectations, as well as significantly stronger operating leverage implied in management's 2021 guidance over our previous forecast, despite continued investment in phase 3 programs and ongoing/upcoming drug launches. Sales of key hematology drug Jakafi sales grew 15% in 2020, with the firm's overall 18% product and royalty revenue benefiting from launches of cancer drugs Pemazyre and Monjuvi and strong 38% royalty growth for immunology drug Olumiant.