Incyte Corporation — Q3 2020 Form 10-Q
Business context and reporting period
Biopharmaceutical company developing and commercializing therapeutics. This filing covers the quarter and nine months ended September 30, 2020; amounts below are in U.S. dollars unless noted. Commercial products include JAKAFI, ICLUSIG and newly launched PEMAZYRE; MONJUVI was approved in July 2020 and commercialized in collaboration with MorphoSys.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $620.6m | $551.6m | $1,877.2m | $1,579.4m |
| Operating income (loss) | $5.3m | $134.3m | $(427.9)m | $307.0m |
| Net income (loss) | $(15.2)m | $128.3m | $(445.5)m | $335.9m |
| Diluted EPS | $(0.07) | $0.59 | $(2.05) | $1.55 |
| Operating cash flow | Not presented by quarter | $(231.9)m | $579.0m |
Q3 product revenue was $522.3m, royalties $98.4m and milestone/contract revenue zero. Nine-month revenue included $95.0m of milestones and contract revenue. Q3 operating margin was approximately 0.9%; nine-month operating margin was approximately negative 22.8%.
At September 30, cash and cash equivalents were $1,497.8m and current marketable securities were $237.0m; together, approximately $1.735bn. Current assets were $2,159.4m and current liabilities $606.2m (about 3.6x current ratio). Convertible notes due November 2020 had a carrying amount of $11.9m. Acquisition-related contingent consideration was $272.0m; lease liabilities totaled $59.0m.
Material changes versus comparable periods
- Revenue increased 13% in Q3 and 19% over nine months year over year. JAKAFI sales rose to $487.8m in Q3, up from $433.4m; ICLUSIG sales also increased. PEMAZYRE contributed $8.1m in Q3 following its April approval. Royalty growth reflected JAKAVI, OLUMIANT and initial TABRECTA royalties.
- Q3 net income turned to a loss, while nine-month results shifted from profit to a substantial loss, mainly reflecting higher R&D spending and collaboration-related costs. R&D expense was $438.1m in Q3 and $1,810.0m for nine months, versus $281.3m and $841.2m, respectively, in 2019.
- Major unusual R&D items included the $750m MorphoSys upfront payment in Q1, $54.5m of premium on MorphoSys shares recorded as R&D, and a $120m FDA priority review voucher purchased in Q3. The filing reports $950.5m of upfront and milestone expenses, including the voucher, for the nine-month period.
- Q3 included a $13.2m unrealized loss on long-term investments, compared with a $2.3m gain in Q3 2019. Nine-month investment results remained a $10.9m gain, below $18.7m in 2019.
- Operating cash flow declined by $810.9m year over year, primarily due to collaboration cash outflows and working-capital changes. Capital expenditures were $135.9m for nine months, compared with $48.7m.
Outlook, commentary and risks
- Management said cash, cash equivalents and marketable securities, together with operating cash flow, should meet capital needs for the foreseeable future. No numerical full-year revenue or earnings guidance is provided in the filing.
- Management expected a $20m Lilly milestone in Q4 2020 following the October European approval of baricitinib for atopic dermatitis. Results from the RUXCOVID Phase III trial were expected before year-end 2020.
- COVID-19 had not materially affected commercial operations or manufacturing supply to date, but management reported fewer new JAKAFI patient starts and possible effects on clinical-trial enrollment, monitoring, research activity and future demand.
- Principal risks include reliance on JAKAFI sales; pricing and reimbursement pressure; competition and potential generic challenges to JAKAFI; dependence on collaborators and limited-source manufacturers; clinical and regulatory uncertainty; and possible COVID-19-related disruption.
- A DOJ inquiry and related qui tam action concern speaker and patient-assistance programs. The company had not recorded a reserve because it could not predict the outcome or reasonably estimate a loss range.
- Calithera elected to stop co-funding its program effective September 30, 2020. Incyte will fund development costs and the U.S. profit-sharing arrangement ends; royalty and milestone terms change under the agreement.
Most important facts for investors to verify
- Whether JAKAFI revenue growth and new-patient starts recover or remain affected by COVID-19, and the trajectory of PEMAZYRE and MONJUVI commercialization.
- How much R&D and cash use relates to one-time collaboration payments versus recurring pipeline investment, and the resulting path to profitability.
- RUXCOVID trial results, along with development and regulatory progress for major pipeline programs.
- Repayment or conversion of the $11.9m notes due November 2020 and subsequent liquidity and operating cash-flow trends.
- Any material developments in the DOJ/qui tam matter, JAKAFI generic challenges, reimbursement terms, or supply-chain risks.