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Incyte (INCY) Up 26.2% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Incyte Corporation (INCY - Free Report) . Shares have added about 26.2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Incyte’s Earnings & Revenues Up Y/Y

Incyte reported fourth-quarter earnings of $0.15 beating the Zacks Consensus Estimate of $0.14. Incyte had reported earnings of $0.29 per share in the year-ago quarter.

Quarterly revenues came in at $326.5 million, up 33.9% year over year, and beat the Zacks Consensus Estimate of $325.7 million. The strong top-line growth was driven by higher sales of Jakafi in the U.S. and Iclusig in Europe as well as royalties from ex-U.S. sales of Jakavi.

Quarter in Detail

Jakafi sales grew 30%, year over year to $237.5 million. Net product revenue of Iclusig amounted to $12.9 million. Product royalty revenues from Novartis for the commercialization of Jakafi in ex-U.S. markets surged 41% to $33.2 million. Contract revenues rose approximately 12.2% to $42.9 million.

Research and development (R&D) expenses were up 38.5% to $161.6 million. Selling, general and administration (SG&A) expenses amounted to $96.0 million, up 83.1% year over year.

2016 Results

Revenues for 2016 came in at $1.1 billion, up 46.7% from $753.7 million in 2015. The reported revenues were in line with the Zacks Consensus Estimate of $1.1 billion. Earnings per share came in at $0.54, up from $0.03 in 2015.

2017 Outlook

The company expects Jakafi revenues in the range of $1.02 – $1.07 million. Iclusig revenues are, however, still expected in the range of $60–$65 million.

R&D expenses are now expected in the range of $785–$835 million. SG&A expenses are still expected in the range of $340–$360 million.

Pipeline Update

Concurrent with the quarterly result, Incyte announced that the European Commission approved Olumiant (baricitinib) for patients with rheumatoid arthritis (RA). The drug has been licensed to Eli Lilly and Company and is under regulatory reviews. The approval triggers a $65 million payment to Incyte from Lilly, along with additional potential milestone payments, as well as royalties on sales of Olumiant. Lilly announced that it plans to begin a phase III trial on Olumiant in patients with psoriatic arthritis during 2017.

A phase II trial, REACH1 on Jakafi for the treatment of patients with graft-versus-host disease (GVHD) has enrolled its first patient in Dec 2016 while REACH2 and REACH3 in steroid-refractory acute and steroid-refractory chronic GVHD, respectively, are expected to begin in 2017 in collaboration with Novartis. Jakafi is also being evaluated as a treatment means for patients with essential thrombocythemia and a trial is expected to begin in 2017.

Meanwhile, in Jan 2017, Incyte and Merck announced that the companies will expand the clinical development program evaluating epacadostat with Keytruda, and plan to initiate phase III trials of the combination in four additional tumors beyond melanoma: non-small cell lung cancer, renal cell carcinoma, bladder cancer and squamous cell carcinoma of the head and neck. These trials are expected to begin in 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been four downward revisions for the current quarter. In the past month, the consensus estimate has shifted downward by 239.9% due to these changes.

Incyte Corporation Price and Consensus

 

Incyte Corporation Price and Consensus | Incyte Corporation Quote

VGM Scores

At this time, Incyte's stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. Following the exact same course, the stock was allocated also a grade of 'F' on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

The stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. It's no surprise the stock has a Zacks Rank #5 (Strong Sell). We are looking for a below average return from the stock in the next few months.


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