Many investors continue to be worried about Incyte’s financial prospects when the patent for the company’s blood cancer medication, Jakafi, expires in 2028. We believe the company is preparing well for the post-expiry period and is on a growth path irrespective of the financial impact of patent expiry.
Incyte Corporation (INCY) is a biopharmaceutical company focused on discovering, developing, and commercializing innovative therapies to battle cancer and other serious diseases. The company is unique in its commitment to addressing unmet medical needs using precision medicine, an innovative approach that tailors medical treatment to the particular characteristics of each patient, namely genes, environment, and lifestyle.
The company commercializes two main products: Jakafi, a leading treatment for myelofibrosis and polycythemia vera, that has set industry standards and has established Incyte as a key player in hematology; and Opzelura, a topical cream for atopic dermatitis and vitiligo. Additionally, it has some promising candidates in the pipeline, including a CDK2 inhibitor for advanced solid tumors.
The company operates around the globe, but the majority of its revenue comes from the U.S. market. It serves healthcare providers, hospitals, government health agencies, research institutions, insurance companies, and specialty pharmacies.
Net product revenue from Jakafi represents approximately 70% of Incyte’s total revenue, while sales from Opzelura contribute about 10%. The additional 20% is generated from royalty revenues.
This over-reliance on Jakafi is what investors are worried about. However, it isn’t a new development, and the impact of such expiries is usually priced into the stock in similar cases. The forecasted drop in revenue after the patent expiry will be significant, but the stock already discounts that.
This brings us to the question, what will happen to the company’s growth after Jakafi’s patent expiry? One of the products that will help stabilize the company is Opzelura, which boasted a 52% increase in revenue in Q3. The product is gaining traction both in the domestic and international markets. It gives hope to investors that life after Jakafi is not as gloomy as many describe it to be.
Apart from Opzelura, the company’s product pipeline also inspires confidence. The FDA approval of the GHVD medication Niktimvo adds another income stream for the company. For Opzelura, it has already filed for expanded indications, which if approved would further strengthen Incyte’s market position.
The company is also doubling down on its R&D spending, which was up by 53% in the last quarter. This investment should inspire confidence among investors, as the company is clearly doing its best to prepare for Jakafi’s patent expiry. This anticipation by the management, together with alternate sources of revenue, drives our bullish thesis on the stock.
Incyte Corporation does not rank on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 35 hedge fund portfolios held INCY at the end of the second quarter which was 40 in the previous quarter. While we acknowledge the potential of INCY as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as INCY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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