Wider-than-Expected Q1 Loss at Incyte - Analyst Blog

Incyte Corporation INCY reported a loss of 21 cents per share in the first quarter of 2014 wider than the Zacks Consensus Estimate of a loss of 19 cents and the year-ago loss of 12 cents per share. The wider-than-expected loss during the quarter was due to higher expenses.

Total revenues in the quarter increased 26.3% year over year to $89.8 million. Revenues during the reported quarter were boosted by higher product revenues. Revenues were, however, well short of the Zacks Consensus Estimate of $99 million.

Quarter in Detail

Total revenue comprised net product revenues, product royalty revenues, contract revenues and others. Incyte recorded net product revenues of approximately $69.7 million from Jakafi sales in the first quarter, up 44% year over year. Jakafi, Incyte's sole marketed product, was launched in the U.S. in Nov 2011, for treating patients suffering from intermediate or high-risk myelofibrosis (MF).

Incyte has a collaborative agreement with Novartis NVS to market Jakafi outside the U.S. The drug has also been approved by the European Commission to treat adults suffering from primary MF, post-polycythemia vera MF or post-essential thrombocythemia MF.

We note that Jakafi is being studied for additional indications as well. Incyte, in collaboration with Novartis, is currently evaluating Jakafi in two phase III clinical trials (RESPONSE and RELIEF), for the treatment of patients suffering from polycythemia vera (PV). The company intends to submit a supplemental new drug application for Jakafi for the PV indication soon based on the positive results from the RESPONSE trial. Results from the RELIEF trial are expected in mid 2014. Incyte expects Jakafi's PV indication, once approved, to contribute to the company's top line 2015 onwards.

Incyte received product royalty revenues of $9.8 million from Novartis during the reported quarter, up 66.3% year over year. Contract revenues declined 39% to $10.2 million in the first quarter. The massive decline in contract revenues during the quarter was primarily due to an upfront payment received from Novartis in the 2013 quarter. Other revenues accounted for the balance.

Both research and development (R&D) expenses (up 43.5% to $75.6 million) and selling, general and administrative (SG&A) expenses (up 66.1% to $37.0 million) climbed during the quarter. While Incyte's efforts to develop its pipeline were primarily responsible for the rise in R&D expenses, higher commercialization expenses related to Jakafi drove the company's SG&A expenses.

2014 Outlook Reaffirmed

The company still expects 2014 Jakafi net product sales in the range of $315–$335 million. The net sales guidance excludes any product royalty revenues received from Novartis on sales of Jakavi (EU trade name for Jakafi).

Our Take

We are encouraged by the strong Jakafi sales during the first quarter. However, the company's overall performance was below expectations. Incyte has a robust pipeline. Successful development and commercialization of these candidates should drive growth. We expect investor focus to remain on Jakafi's performance in the coming quarters.

Incyte, a biopharmaceutical company, currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Alexion Pharmaceuticals, Inc. ALXN and Gilead Sciences Inc. GILD. Both the stocks hold a Zacks Rank #1 (Strong Buy).