Top picks 2012: Incyte

by John McCamant, editor The Medical technology Stock Letter

Incyte (INCY) is our top stock selection for 2012.  The Delaware-based company is a leader in developing small molecule drugs for cancer and inflammation.  

The prime jewel in their drug development portfolio is Jakafi, a JAK inhibitor approved by the FDA in November for myelofibrosis (MF), a potentially life-threatening blood cancer.

 European approval is imminent and will provide a nice catalyst in 2012. There is basically no competition in treating MF since before the FDA’s recent approval of Jakafi there were no drugs approved to treat this type of cancer.

Importantly, ongoing trials to expand the potential patient base into polycythemia vera (PV) and essential thrombocythemia (ET) could more than double the market opportunity.

INCY has aggressively priced Jakafi at $84k/year, which came in well above Wall Street’s expected range of ($40-60K). The aggressive pricing should help them meet revenue expectations during launch.

While we view INCY as a valuable investment based on the commercial potential of Jakafi, the company is also working on a blockbuster.

INCY recently presented very strong Phase III data fro Jakafi at the American Society of Hematology (ASH) meeting.  

Additionally, the company hosted multiple Jakafi education sessions at ASH which were all packed with doctors interested in this new orally available cancer drug.  

These positive sessions and strong data should help Jakafi gain rapid adoption among doctors, and should help avoid the dreaded slow launch that has plagued many recent new drugs.  

The bottom line is INCY had a very productive ASH meeting, pushing aggressively ahead with the goal of positioning Jakafi for maximum sales.  

As we mentioned, though, INCY has another shot on net with LY3009104 (INCB28050), and Phase IIb data for this candidate is expected in the first half of 2012. The drug is being developed in partnership with Eli Lilly.

The companies reported in October that their six-month, dose-ranging Phase IIb trial in patients with rheumatoid arthritis (RA) has completed patient enrollment. ‘050 has huge market potential as an oral drug candidate that would replace intravenous TNF inhibitors, the current standard of care for the treatment of RA.  

The market for TNF inhibitors is over $20 billion and an oral drug would have a chance to capture a large portion of this market.  Strong data from ‘050 would serve as a significant catalyst for INCY’s share price as Wall Street has so far assigned only modest value to the program.

Finally, we would add that if you need one last reason to own INCY, the company has begun to appear on some Wall Street lists as an acquisition candidate.  

Adding fuel to the theory is the fact that INCY’s CEO sold his previous company, DuPont Pharma, for a significant premium after launching a successful drug.  A potential acquisition would almost certainly come at a significant premium.

While many biotechs are mentioned as takeover targets, it is important to note that Big Pharma is recently extremely risk-averse and waits until after regulatory risk is removed with a drug approval before pulling the trigger on an acquisition. This should put INCY squarely in their sites.  INCY is a buy under $17.  

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