INCY - Incyte: Overly Reliant On Jakafi Despite Positive Phase 2 Results For Axatilimab

2023-12-18 09:00:00 ET

Summary

• Incyte stock has experienced significant volatility and decline throughout the year.
• INCY is focused on updating its revenue base but lacks any strong near term catalysts.
• Incyte has a pending LOE issue.

This is my second Incyte (INCY) article following 04/2023's " Incyte: The Jakafi Company Branching Out - Baby Steps " ("Baby Steps"). Baby Steps described how Incyte was building a three pronged stool of therapies to grow its revenues outside JAKAFI (ruxolitinib). At the time I listed Incyte as an unattractive investment because of its excessive reliance on JAKAFI.

In this article I report on its progress in updating its revenue base.

INCY stock has traded erratically YTD.

Incyte's trading YTD as reflected by its stock chart below has been mostly downhill. It opened the year 01/2023 with closing prices hugging at ~$80.00. As January progressed it grew to ~$85.00. From that point on it started tailing off.

It traded desultorily lower until its 05/02/2023 Q1, 2023 earnings triggered a more robust downturn. Earnings for Q1, 2023 disappointed analysts on both the top and bottom line. Incyte closed 05/01/2023 >$75.00. It closed 05/2023 at $61.55.

Shares continued generally lower until 10/30/2023, when they closed down at $52.16. They recovered gradually in November and early December. They have enjoyed a nice upsurge in recent days as shown by the chart below for 12/14-08/2023:

Seeking Alpha's 12/12/2023 afternoon news feed attributed this upswing to positive phase 2 results in a pivotal Phase 2 trial for axatilimab. Incyte is developing axatilimab in collaboration with Syndax Pharmaceuticals ( SNDX ) as discussed below.

Overly reliant on its Jakafi workhorse therapy, Incyte's growth is imperiled by LOE.

Baby Steps was all about Incyte's heavy reliance on JAKAFI (ruxolitinib). For 2022 Incyte generated aggregate product and product royalty revenues of ~$3.228 billion, of which ~$2.740 billion or ~85% were attributable to JAKAFI.

According to Incyte's Q3, 2023 10-Q (p. 10), its nine month product and product royalty revenues aggregated ~$2.68 billion. Of this nine month product revenue total, ~$2.16 billion or ~81% was attributable to JAKAFI. Pared down JAKAFI concentration from ~85% to ~81% is a definite step in the right direction although still far from satisfactory.

Incyte's excess concentration of JAKAFI revenues is not just an indefinite future issue. According to Incyte's 2023 10-K , (p. 28) JAKAFI's composition of matter patent expires in 2028. Per Incyte's Q4, 2022 earnings press release a six month pediatric exclusivity extension to Jakafi's patent added:

...six months to the expiration for all ruxolitinib patents, thereby extending the patent expiry for Jakafi through December 2028.

As I write weeks before the new year of 2024, this only gives JAKAFI five years before potential loss of exclusivity [LOE] becomes a central issue for the stock.

I have followed AbbVie's (ABBV) falling revenue travails as it worked to wean itself from its heavy reliance on its lead therapy HUMIRA . While it is unclear whether or not Incyte is heading down that path, it is an issue that demands attention.

Management has a plan B for its LOE.

During Incyte's Q3, 2023 earnings call (the " Call ") LOE was raised twice during Q&A. Towards the end of the Call an unidentified analyst asked the question straight on; he asked whether pipeline development would be timely enough to offset JAKAFI LOE. CMO/EVP Stein responded:

...the XR program, we're busy in terms of response to the FDA now, and the idea is to get the XR approval prior to the loss of the LOE for RUX. Both BET and ALK programs, we want to declare where we go in if we go into registration studies end of this year, early part of next year, and it will give us enough time to execute a Phase III program and get across the finish line there. So that's absolutely intent.

Plan B had been dealt a severe blow back in 03/2023; the FDA swatted down its NDA for ruxolitinib extended-release [XR] tablets for once-daily use with a CRL. The CRL was typically vague, advising that it could not approve the NDA in its present form. Incyte's release announcing the CRL noted:

The FDA acknowledged that the study submitted in the New Drug Application (NDA) met its objective of bioequivalence based on area under the curve (AUC) parameters but identified additional requirements for approval. Incyte intends to meet with the FDA to determine appropriate next steps.

When this will be resolved is highly uncertain. What is certain is that management is focused on the LOE problem. It is working to develop strategies to deal with it both by focusing on pipeline development and its XR strategy which is currently on CRL limbo.

An interesting group of approved therapies and ones in late stage development offer hope.

The above referenced improvement from 85% to 81% JAKAFI revenues was primarily related to OPZELURA (ruxolitinib cream). It generated revenues of ~$0.22 billion for the nine months of 2023 compared to ~$0.13 billion for all of 2022.

As shown by Incyte's Q3, 2023 10-Q (p. 10) excerpted below it has stable of five approved products generating product revenues:

Of these five, only two are in solid growth mode. These include JAKAFI the only blockbuster in the group and OPZELURA. OPZELURA was approved by the FDA for treatment of mild to moderate atopic dermatitis in 09/2021. It was then approved for the most common type of vitiligo in 07/2022.

Presentation slide 25 shows the big plans that Incyte entertains for OPZELURA:

Analysts are paying attention. In an 05/2023 article Morningstar pegs Incyte as having a fair value of $88.00. It lists OPZELURA as having a peak sales potential of $2 billion. Beyond OPZELURA, Incyte has a number of therapies in or nearing pivotal development.

Its axatilimab which triggered its recent share upswing as discussed above is a case in point. Incyte acquired right to axatilimab in an 09/2021 collaboration with Syndax .The deal calls for a 50-50 profit share on US sales with a double digit royalty to Syndax on ex-US sales.

Axatilimab development has moved forward apace. The parties anticipate filing a BLA very soon , by year end 2023. If all goes well this should give it potential for additional earnings in 2025, although I do not see this as justifying Incyte's recent price movement.

In addition to axatilimab Incyte has other molecules in late development. Its presentation slide 22, excerpted below lists three late stage Povorcitinib candidates:

During the Call an analyst asked how Incyte planned to position Povorcitinib in treatment of vitiligo compared to OPZELURA. Stein explained Povorcitinib:

...would open up the vitiligo community with people with much more extensive body surface area involvement where it becomes a little pragmatically hard to apply cream across the body and an oral JAK can be used in that setting with the right therapeutic ratio. And as we guided to, we want to get this study going by the end of this calendar year.

Conclusion

To me Incyte's recent flurry upward was more of a recognition that its stock had fallen further than justified by its fundamentals. Incyte has support across all three of Seeking Alpha's rating idioms ; they all list it as a "buy" as I write on the afternoon of 12/17/2023.

I am more cautious. As I assess the situation I see a stock trading:

1. With a heavy concentration of revenues in a single therapy;
2. without near term catalysts; and
3. which has been in a long term downtrend.

For further details see: