Incyte Corporation — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; unaudited. Incyte is a drug discovery and development company focused on oncology and inflammation. Unless noted, dollar amounts are in millions.
Financial performance and liquidity
| Metric | Q1 2011 | Q1 2010 / prior period |
|---|---|---|
| Total revenue | $32.0 | $17.3; up 85% |
| Operating expenses | $47.8 | $37.1 |
| Operating loss | $(15.8) | $(19.8) |
| Net loss | $(26.5) | $(35.7) |
| Basic and diluted loss per share | $(0.21) | $(0.30) |
| Cash used in operating activities | $(44.2) | $102.8 provided |
| Cash and cash equivalents, March 31 | $377.8 | $417.9 at Dec. 31, 2010 |
| Cash, cash equivalents and marketable securities | $383.6 | Excludes restricted cash |
| Total assets | $459.6 | $489.6 at Dec. 31, 2010 |
| Total liabilities | $563.6 | $578.2 at Dec. 31, 2010 |
Contract revenue was $31.7 million, including a $15.0 million Novartis milestone for INCB28060; license and royalty revenue was $0.2 million. Research and development expense increased to $36.3 million from $31.4 million, while selling, general and administrative expense rose to $10.8 million from $5.8 million. The filing reports no gross margin measure. Operating loss was approximately 49% of revenue, versus approximately 115% in Q1 2010.
Operating cash flow swung from $102.8 million provided to $44.2 million used. Management attributed the comparison primarily to upfront and milestone collaboration receipts in Q1 2010. Cash declined $40.1 million during Q1 2011. Current assets were $426.0 million and current liabilities $110.2 million. Incyte reported $37.9 million of restricted cash escrowed for interest payments through October 2012.
Debt comprised $400 million principal of 4.75% convertible senior notes due 2015 and $20 million of Pfizer convertible subordinated notes due in 2013 and 2014. Total debt carrying value was $298.9 million; the senior notes’ reported fair value was $804.6 million. Stockholders’ deficit was $104.0 million. Contractual obligations totaled $519.0 million, including principal and interest on debt and operating leases.
Material changes versus Q1 2010
- Revenue increased mainly because of the $15.0 million Novartis milestone and higher recognized collaboration revenue.
- Net loss narrowed by $9.2 million. The prior-year quarter included a $4.0 million debt-redemption loss; interest expense also decreased from $11.8 million to $10.8 million.
- R&D expense rose with development headcount, stock compensation and laboratory costs; clinical research and outside services declined with trial timing.
- SG&A nearly doubled, reflecting added headcount and preparation for potential U.S. commercialization of ruxolitinib.
- Q1 2010 operating cash flow benefited from collaboration cash receipts; Q1 2011 operating cash use should be considered in that context.
Outlook, commentary and risks
- Management expected to submit a U.S. NDA for ruxolitinib for myelofibrosis in Q2 2011. If approved on an anticipated priority-review timeline, Incyte planned a U.S. launch in late 2011. These were forward-looking expectations, not assured outcomes.
- Ruxolitinib was in Phase III trials for myelofibrosis and polycythemia vera; LY3009104 was in Phase IIb development for rheumatoid arthritis with Lilly. Incyte anticipated continued losses for several years and expected losses to fluctuate.
- Management believed available cash, cash equivalents and marketable securities were sufficient for at least the next 12 months. It also stated future funding could be needed; additional financing might be unavailable or dilutive, and debt covenants restrict certain actions.
- Key risks include clinical-trial outcomes and delays, regulatory approval, manufacturing capacity and single-source supply, commercialization execution and reimbursement, reliance on collaborators, intellectual-property disputes, competition and substantial debt obligations.
- One customer accounted for 89% of Q1 revenue; three customers represented all accounts receivable at March 31. Revenue and collections are therefore concentrated.
- Genomic Health litigation was resolved by agreement on April 29, 2011; the settlement amount was stated to be immaterial.
Important facts for investors to verify
- Whether the ruxolitinib NDA was submitted and the FDA review, approval and launch timing and conditions.
- Progress and results from pivotal ruxolitinib studies and other lead clinical programs.
- Cash burn, collaboration milestone receipts, customer concentration and the sustainability of available liquidity.
- Debt terms, the notes’ potential dilution, required debt service and applicable covenant restrictions.
- Ruxolitinib commercial-scale process validation and the status of qualifying a second API supplier.
- Actual commercialization spending, reimbursement prospects and any material changes in litigation or contingent obligations.