BOFA/Merril INCY future path secured by promising new cancer drug
We are initiating coverage of Incyte Corporation (INCY) with a Buy rating and a
$12 PO based on our expectations that the company’s key pipeline product will be
the first to launch into an untapped $1 billion+ market, and competition is two-plus
years behind. INCY is an unprofitable, developmental-stage biotech company
with a focus on discovering and developing novel medicines. While it has not
been an easy road for INCY shareholders, we have confidence in our positive
stance based on the strong clinical data shown in high unmet medical need
diseases for the lead program, backed by a very favorable partnership with
Novartis. Key near-term risks are timeline delays, regulatory, and pipeline news.
Lead program has demonstrated impressive profile
INCY’s lead program ‘424 is a twice-daily oral pill that inhibits Jak2, a kinase that
is mutated in a series of related blood disorders. Although INCY is developing
‘424 for disease states that are relatively rare, ‘424 has demonstrated impressive
and durable efficacy and should: (1) enjoy rapid market penetration; (2) command
comparable pricing to other drugs targeting rare diseases (>$50K/patient/yr); and
(3) be used as chronic therapy in a loyal patient base. Copycat products in early
stage development do not appear distinct enough to warrant long-term market
erosion concerns. Regulatory clarity on development of ‘424 for additional
indications (1H10) and Phase 3 data for ‘424 in its first indication (2H10) are key
stock catalysts, and should boost investor confidence in ‘424’s potential.
Additional shot on goal could create more value
Our $12 PO is based on our DCF sum-of--parts, with the vast majority of value
assigned to ‘424 ($11/sh). INCY may create additional value by licensing another
Jak2 inhibitor ‘050 for inflammation after 2Q10 proof of efficacy data.
