Incyte Corporation — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Incyte is a biopharmaceutical company with commercial products JAKAFI, ICLUSIG and, following April FDA approval, PEMAZYRE. Results are consolidated as one operating segment.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $688.0 million | $529.9 million | $1,256.6 million | $1,027.8 million |
| Operating income (loss) | $230.8 million | $98.6 million | $(433.2) million | $172.7 million |
| Net income (loss) | $290.3 million | $105.3 million | $(430.3) million | $207.6 million |
| Diluted EPS | $1.32 | $0.48 | $(1.98) | $0.96 |
| Operating cash flow | Not separately provided for the quarter | $(414.0) million | $308.6 million |
- Q2 revenue increased about 30% year over year. Product revenue was $500.3 million, royalties $92.8 million and milestone/contract revenue $95.0 million. JAKAFI generated $473.7 million of product revenue; PEMAZYRE contributed $3.8 million following launch.
- Six-month revenue rose about 22%, but the company recorded a net loss. R&D expense was $1.372 billion, versus $559.9 million a year earlier, largely reflecting the $750 million upfront MorphoSys payment for tafasitamab and related transaction costs.
- Q2 operating margin was approximately 33.5%; six-month operating margin was negative. Q2 net income included a $72.3 million unrealized gain on long-term investments. Six-month investment gains were $24.1 million.
- Cost of product revenue was $33.4 million in Q2 and $60.7 million for the six months. Selling, general and administrative expense was $118.0 million and $229.1 million, respectively.
Balance sheet and liquidity
- At June 30, 2020, cash and cash equivalents were $1.327 billion and current marketable securities were $262.8 million; together, approximately $1.589 billion. Long-term investments were $248.7 million.
- Current assets were $2.078 billion and current liabilities $556.5 million. Total liabilities were $867.7 million and stockholders’ equity $2.345 billion.
- Convertible notes due November 2020 had a carrying amount of $18.6 million. The company also reported $57.1 million of finance and operating lease liabilities and $274.0 million of acquisition-related contingent consideration.
- Six-month investing cash outflow was $151.8 million, including $83.1 million of capital expenditures. Financing cash inflow was $58.9 million. Cash, cash equivalents, restricted cash and investments declined $504.4 million during the period.
Changes, outlook and risks
- Revenue growth reflected higher JAKAFI sales and royalty revenue, new PEMAZYRE sales, and $90 million of Novartis milestones for TABRECTA approvals. Product royalties increased to $92.8 million in Q2 from $76.0 million.
- The MorphoSys tafasitamab collaboration drove the sharp increase in six-month R&D expense and operating cash use. Incyte paid a $750 million upfront fee and recorded an additional $54.5 million relating to the MorphoSys share purchase premium as R&D expense.
- Management said available cash, cash equivalents and marketable securities, together with operating cash flow, were expected to meet capital needs for the foreseeable future. The filing provides no numeric earnings or revenue guidance.
- COVID-19 had not materially affected commercial operations or manufacturing supply to date, according to management. However, new JAKAFI patient starts declined amid restrictions, and clinical-trial recruitment, monitoring and discovery work faced potential delays. The longer-term effects remained uncertain.
- In July 2020, after quarter-end, the FDA approved MONJUVI (tafasitamab) with lenalidomide under accelerated approval for certain adults with relapsed or refractory diffuse large B-cell lymphoma.
- Incyte disclosed an ongoing DOJ inquiry and qui tam action concerning speaker programs and patient assistance programs. The company could not estimate the outcome or loss range and recorded no reserve. Other key risks include dependence on JAKAFI, reimbursement and pricing pressure, clinical and regulatory uncertainty, third-party manufacturing, and possible COVID-related disruption.
Important facts for investors to verify
- How much of recurring earnings and revenue growth is attributable to commercial product sales and royalties versus milestones and market-driven investment gains.
- The expected pace and cash impact of R&D spending following the MorphoSys upfront payment, and progress and commercialization economics for tafasitamab/MONJUVI.
- Whether lower JAKAFI new-patient starts or COVID-related trial and supply disruptions persist, and the resulting effect on sales and development timelines.
- The status and potential financial exposure of the DOJ/qui tam matter, for which no loss estimate or reserve was provided.
- The November 2020 maturity of the convertible notes and planned funding for capital projects and other contractual or collaboration commitments.