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Revenues Rise at Incyte

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Incyte Corporation (INCY - Free Report) reported earnings of 14 cents per share in the fourth quarter of 2012 as opposed to a loss of 44 cents per share suffered in the year-ago quarter. The Zacks Consensus Estimate had called for breakeven earnings for the quarter. The strong performance in the final quarter was attributed to higher revenues.

The company however suffered a loss of 34 cents per share in full year 2012, narrower than the Zacks Consensus Estimate of a loss of 48 cents and the year-ago loss of $1.49 per share. Incyte’s full year revenues were $297.1 million compared with $95.5 million in the year-ago quarter. Incyte’s full year revenues were ahead of the Zacks Consensus Estimate of $276 million.

Quarter in Details

Total revenues in the reported quarter jumped to $113.8 million from $28.9 million in the year-ago quarter. Revenues were boosted by the presence of Jakafi sales. Jakafi, Incyte’s sole marketed product, was launched in the US in Nov 2011, for treating patients suffering from intermediate or high-risk myelofibrosis (MF). Revenues beat the Zacks Consensus Estimate of $93 million.

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

Incyte recorded net product revenues of approximately $43.3 million from Jakafi sales in the drug’s fourth full quarter in the market. The company recorded $2 million as net product sales of Jakafi in the year-ago period.

Incyte has a collaborative agreement with Novartis AG (NVS - Free Report) to market Jakafi outside the US. The drug is now 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. Novartis is currently evaluating Jakafi in two phase III clinical trials, for the treatment of patients suffering from polycythemia vera (PV). The company expects to submit a supplemental new drug application in 2014.

Jakafi is also being evaluated in a phase II trial in combination with Roche Holding AG’s (RHHBY - Free Report) Xeloda for the treatment of refractory metastatic pancreatic cancer. Final results from the study are expected by the end of 2013.

Incyte’s product royalty revenues came in at $3.7 million during the reported quarter. Contract revenues shot up 149.6% year over year to $66.7 million. Other revenues were $155,000, up 10.7% from the year-ago quarter.

Both research and development (R&D) expenses (up 15.2% to $59.8 million) and selling, general and administrative (SG&A) expenses (up 12.2% to $23.7 million) climbed during the quarter. Incyte’s efforts to develop its pipeline were primarily responsible for the rise in R&D expenses in the fourth quarter of 2012. Higher costs related to the marketing of Jakafi were primarily responsible for pushing the SG&A costs up.

2013 Outlook

Apart from disclosing its financial results, Incyte also provided its guidance for 2013. The company expects total revenues from net product sales of Jakafi in the range of $210–$225 million, excluding any product royalty revenues received from Novartis on sales of Jakavi.

Incyte also expects to receive $60 million as contract revenues from Novartis if Jakafi gets pricing approval in certain EU countries. Incyte also expects to earn another $66 million as amortization of the upfront payments under a collaborative agreement in 2013.

R&D expenses for full year 2013 are expected in the range of $260 million to $270 million including a non-cash expense of approximately $25 million to $28 million from the impact of expensing employee stock options.

Incyte’s SG&A expenses for 2013 are expected to be $100–$110 million, which includes non-cash expense of approximately $14 million to $17 million from the impact of expensing employee stock options.

We believe that investor focus will be on the market performance of Jakafi going forward. Incyte currently carries a Zacks Rank #4 (Sell). However, other bio-pharma stocks such as Targacept Inc carry a Zacks Rank #2 (Buy).

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