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Incyte Corporation’s (INCY - Analyst Report) second-quarter 2012 earnings of 3 cents per share compared favorably with the year-ago loss of 41 cents per share. Results were boosted by higher revenues. The Zacks Consensus Estimate hinted at breakeven earnings.

Total revenues in the reported quarter jumped to $86.5 million from $16.8 million in the year-ago quarter. Revenues were boosted by the presence of Jakafi sales and milestone payment received from Novartis (NVS - Analyst Report). Jakafi, Incyte’s sole marketed product, was launched in the US in November 2011, for treating patients suffering from intermediate or high-risk myelofibrosis. Revenues were above the Zacks Consensus Estimate of $85 million.

Total revenues comprised net product revenues, contract revenues and license and royalty revenues.

Incyte recorded net product revenues of approximately $29.7 million from Jakafi sales in the drug’s second full quarter in the market. Jakafi sales were up more than 53.9% sequentially.

Contract revenues climbed to $56.7 million from $16.7 million. We note that contractual revenues include a $40 million milestone payment from Novartis. This milestone payment was triggered by a positive opinion issued by the Committee for Medicinal Products for Human Use (CHMP) regarding the EU approval of Jakafi.

License and royalty revenues were $78 million, up 5.4% from the year-ago quarter.

Both research and development (R&D) expenses (up 12.0% to $51.6 million) and selling, general and administrative (SG&A) expenses (up 66.3% to $19.7 million) were on the upswing during the quarter. The company’s efforts to develop its pipeline coupled with higher stock-based compensation expenses pushed up the R&D expenses in the second quarter of 2012. Higher costs related to the marketing of Jakafi was primarily responsible for pushing the SG&A costs up.

2012 Outlook

Apart from disclosing financial results, Incyte also provided guidance for 2012. The company expects net sales of Jakafi in the range of $120 - $135 million.

Our Recommendation

We believe that investor focus will be on the market performance of Jakafi going forward. Currently, we have a Neutral stance on Incyte in the long run. The stock carries a Zacks #2 Rank (Buy rating) in the short run.

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