Incyte Corporation (INCY) reported a loss of 22 cents per share in the second quarter of 2014, significantly wider than the Zacks Consensus Estimate of a loss of 9 cents. In the year-ago quarter, Incyte reported earnings of 5 cents per share.
Total revenues in the quarter decreased 2.1% year over year to $99.6 million. Revenues also lagged the Zacks Consensus Estimate of $120 million. This decrease in revenues was mainly due to higher contract revenues received from Novartis (NVS) in the year-ago period.
The Quarter in Detail
Total revenue comprised net product revenues, product royalty revenues, contract revenues and others. Incyte recorded net product revenues of approximately $84 million from Jakafi sales in the second quarter, up 55.3% 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.
We remind investors that Incyte has a collaborative agreement with Novartis for the commercialization of Jakafi in ex-U.S. markets.
During the reported quarter, Incyte received product royalty revenues of $12.3 million from Novartis, compared to $5.8 million a year ago. Contract revenues fell 92.3% to $3.2 million. This massive decline in contract revenues during the second quarter was primarily due to a milestone payment related to the c-MET program and deferred revenue amortization related to an upfront payment received from Novartis in the year-ago quarter. Other revenues accounted for the balance.
In Jun 2014, Incyte announced that Jakavi met the primary endpoint in the phase III RESPONSE study (partnered with Novartis) evaluating Jakavi in patients suffering from polycythemia vera (PV), who are resistant to, or intolerant of, hydroxyurea. However, in July 2014, Incyte revealed that Jakavi did not meet the primary endpoint in the RELIEF study.
In Jul 2014, Jakafi’s product label was updated to include overall survival data as well as additional safety and dosing information for patients suffering from primary myelofibrosis, post-polycythemia vera myelofibrosis or post-essential thrombocythemia myelofibrosis. In Jul 2014, Jakavi was also approved in Japan for the treatment of patients with myelofibrosis. In Jun 2014, the company had filed for Jakafi’s approval for the treatment of patients with PV who are resistant to or intolerant of hydroxyurea in the U.S.
Research and development (R&D) expenses increased 38.9% to $84.7 million from the year-ago quarter mainly due to increased investment for pipeline development. Selling, general and administrative (SG&A) expenses were $40.9 million, up 75.9% from the year-ago quarter. This was due to higher commercialization expenses related to Jakafi.
2014 Outlook Upgraded
The company now expects 2014 Jakafi net product sales in the range of $330 million–$340 million (previously stated as $315 million–$335 million). The net sales guidance excludes any product royalty revenues received from Novartis on sales of Jakafi outside the U.S.
Our Take
Although Jakafi’s sales increased during the second quarter, overall performance of the company did not meet our expectations. However, Incyte is working toward strengthening its pipeline. We believe successful development and commercialization of these candidates should drive growth. We expect investor focus to remain on Jakafi’s (EU trade name is Jakavi) performance in the coming quarters.
Incyte currently carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the biotech sector are Actelion Ltd. (ALIOF) and Celgene Corp. (CELG). Both stocks carry a Zacks Rank #1 (Strong Buy).
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