Incyte Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2019; comparisons are to the corresponding 2018 periods unless noted. Incyte is a biopharmaceutical company with commercial products JAKAFI and ICLUSIG and a pipeline of clinical-stage candidates. It reports one operating segment.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $529.9m | $521.5m | $1,027.8m | $903.8m |
| Operating income | $98.6m | $83.2m | $172.7m | $16.1m |
| Net income | $105.3m | $52.4m | $207.6m | $11.3m |
| Diluted EPS | $0.48 | $0.24 | $0.96 | $0.05 |
| Operating cash flow | Not separately stated | Not separately stated | $308.6m | $53.2m |
- Q2 revenue increased 1.6%; six-month revenue rose 13.7%. Q2 product revenue was $433.9m and royalty revenue $76.0m, while milestone and contract revenue was $20.0m versus $100.0m a year earlier.
- For the six months, product revenue was $830.1m, royalties $137.6m and milestone and contract revenue $60.0m. JAKAFI sales and JAKAVI and OLUMIANT royalties grew; the prior-year period included a $100.0m Lilly regulatory milestone.
- Q2 operating margin was approximately 18.6% versus 16.0%; net margin was approximately 19.9% versus 10.0%. These are calculated from reported figures.
- Six-month research and development expense was $559.9m, down from $601.2m; selling, general and administrative expense was $229.9m, broadly flat. The company ended additional baricitinib co-funding effective January 1, 2019, contributing to lower development costs.
- Cash, cash equivalents and marketable securities totaled approximately $1.70bn at June 30. Cash and cash equivalents were $1.416bn; current marketable securities were $279.6m. Six-month operating cash flow was $308.6m, investing cash outflow $69.7m and financing cash inflow $13.5m.
- Current assets were $2.059bn and current liabilities $367.1m. Convertible notes had a $17.9m carrying amount, with $19.1m principal due in 2020. Total lease liabilities were $56.6m; acquisition-related contingent consideration was $286.0m. Accumulated deficit was $1.67bn.
Material changes and business developments
- JAKAFI revenue rose to $409.5m in Q2 from $345.6m, reflecting reported volume and price increases. ICLUSIG revenue was $24.4m, up from $19.9m.
- JAKAVI royalties increased to $56.9m from $47.1m, and OLUMIANT royalties to $19.1m from $8.9m in Q2.
- The FDA approved JAKAFI for steroid-refractory acute graft-versus-host disease in May 2019. In May, approval triggered a $20.0m milestone payment to Lilly.
- Incyte recognized $40.0m upfront and a $20.0m IND-filing milestone from Innovent during the first half. A July 2019 Zai Lab agreement is expected to generate a $17.5m upfront payment in Q3, plus potential milestones and royalties.
- Capital expenditures were $65.6m in the first half, including work on the Swiss European headquarters and a planned large-molecule production facility; completion of the latter was anticipated in the second half of 2020.
Outlook, commentary and risks
- Management stated that operating cash flow and cash, cash equivalents and marketable securities should meet capital needs for the foreseeable future. The filing provides no numerical full-year revenue or earnings guidance.
- Management highlighted clinical, regulatory, commercialization, reimbursement, manufacturing, competition, intellectual-property and collaboration risks. JAKAFI remains a major revenue source; sales and reimbursement levels, customer purchasing patterns and estimated rebates and chargebacks can affect results. Four customers together represented 36% of accounts receivable at June 30.
- The company received a U.S. Department of Justice civil investigative demand in December 2018 concerning speaker programs and patient assistance programs. Incyte is cooperating, cannot estimate a possible loss, and recorded no reserve.
- A generic manufacturer had submitted an ANDA challenging certain JAKAFI patents; Incyte reported no FDA action on the ANDA to its knowledge. The filing also cites possible future competition, including fedratinib for myelofibrosis.
- Clinical development remains uncertain. Notable activity included completed enrollment in the Phase III GRAVITAS-301 itacitinib trial, initiation of the Phase III FIGHT-302 pemigatinib trial, and ongoing Phase III programs in GVHD and other indications. Capmatinib’s NDA was expected in the second half of 2019 by Novartis.
- Incyte adopted the new lease accounting standard in January 2019, recording $23.6m of right-of-use assets and $23.7m of lease liabilities at adoption; the filing says adoption did not materially affect net income or cash flows.
Important facts for investors to verify
- Whether JAKAFI sales growth and the newly approved GVHD indication sustain product revenue growth, and how much revenue remains concentrated in JAKAFI.
- Progress and regulatory outcomes for key pipeline programs, especially pemigatinib, itacitinib and INCMGA0012, including the anticipated capmatinib NDA timing.
- Developments in the DOJ inquiry, including any claims, resolution timing or potential financial exposure.
- JAKAFI patent and generic-challenge developments, competitive entry, and changes in reimbursement, rebates or chargebacks.
- Cash generation and spending needs, including facility investment, lease commitments and the 2020 convertible-note maturity.
- Volatility in collaboration milestones, publicly traded partner-investment valuations and the fair value of Takeda-related contingent consideration.