Neutral View on Incyte

We are maintaining our Neutral recommendation on Incyte Corporation ( INCY - Analyst Report ) with a target price of $15.00.

Incyte is a Wilmington, Delaware-based drug discovery and development company focused on oral compounds to treat inflammation and cancer. The company's lead compound is INCB18424, an oral janus-associated kinase (JAK) antagonist.

INCB18424 is currently under priority review in the US for treating patients suffering from myelofibrosis (MF), a rare bone marrow disorder, with a decision expected by year-end. We believe that if INCB 18424 is approved and subsequently marketed successfully for MF then it will be a path-breaking achievement for Incyte.

European approval for the candidate for the same indication was sought by partner Novartis ( NVS - Snapshot Report ) in June 2011. Per the agreement with Novartis, while Incyte will market the drug in the US on approval, Novartis will be responsible for the same in ex-US markets.

We are also impressed by Incyte’s collaborations with big pharma players such as Pfizer ( PFE - Analyst Report ) , Novartis and Eli Lilly ( LLY - Analyst Report ) . We believe the association of big pharmaceutical companies will bolster the company with much needed financial strength and experience.

Even though INCB18424 has been filed in the US and EU for MF, most of the other pipeline candidates are several years away from hitting the market. The debt burden of the company is another area of concern.

At the end of the second quarter of 2011, Incyte had $364.1 million in cash, cash equivalents, short-term and long-term marketable securities. The company’s debt burden at the end of the same quarter was approximately $304.5 million.

We prefer to remain on the sidelines until further visibility is obtained on the pipeline development at Incyte and retain our Neutral view on the stock.