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Is a Disappointment in Store for Incyte (INCY) Q4 Earnings?

Zacks

Incyte Corporation INCY is scheduled to report fourth-quarter 2018 results on Feb 14, before the market opens.

In the last reported quarter, the company missed estimates by 5.0%. Incyte’s earnings track record has been disappointing so far. Over the last four quarters, the company missed earnings expectations thrice, delivering average negative earnings surprise of 6.75%.

Incyte Corporation Price, Consensus and EPS Surprise


Incyte Corporation Price, Consensus and EPS Surprise | Incyte Corporation Quote

Factors Driving Growth

Incyte’s lead drug, Jakafi (ruxolitinib) is a first-in-class JAK1/JAK2 inhibitor, approved for the treatment of patients with polycythemia vera (“PV”), and those with intermediate or high-risk myelofibrosis (“MF”), including primary MF, post-PV MF and post-essential thrombocythemia MF. While Incyte markets the drug in the United States, it is marketed by Novartis NVS as Jakavi outside the country.

Incyte continues to gain traction from Jakafi’s performance. Jakafi revenues summed $1.0 billion in the first nine months of 2018, up 21% from the year-ago timeframe, driven by strong patient demand.

We expect the trend to continue in the fourth quarter. The company updated its sales guidance with the third-quarter results. The company expects Jakafi revenues of $1,370-$1,400 million (previous guidance: $1,350-$1,400 million).

In order to expand patient population and increase commercial potential of the drug, the company is working toward expanding Jakafi’s label, further.

We expect investors to also focus on the pipeline development efforts, given the recent setbacks.

The FDA recently extended the review period of the supplemental New Drug Application (sNDA) for Jakafi to treat patients with acute graft-versus-host disease (GVHD) who have had an inadequate response to corticosteroids. The sNDA was submitted in August 2018, and the FDA granted it both Priority Review and Breakthrough Therapy designation.

However, the FDA extended the action date by three months to review additional data submitted by Incyte in response to the FDA’s information requests. The additional data has been determined by the FDA to constitute a major amendment to the sNDA. Hence, the new Prescription Drug User Fee Act (PDUFA) target action date is May 24, 2019.

We remind investors that while Jakafi sales and royalties are key components of Incyte’s revenue growth, Iclusig sales and Olumiant royalties are also contributing to the top line. Iclusig revenues are expected to be $80-$85 million.

Earlier in the month, Incyte and partner Eli Lilly and Company announced that Olumiant (baricitinib) met the primary endpoint in two phase III studies — BREEZE-AD1 and BREEZE-AD2 — evaluating the efficacy and safety of Olumiant monotherapy for the treatment of adult patients with moderate to severe atopic dermatitis (AD). Olumiant is already approved for the treatment of moderately-to-severely active rheumatoid arthritis (“RA”) in patients with inadequate response or intolerant to TNF inhibitor therapies.

The company also updated its guidance along with third-quarter results announcement. R&D expenses are now expected to be $993-$1,038 million, down from $1,008-$1,103 million projected earlier. SG&A expenses are expected to be $370-$385 million compared with the previous guidance of $340-$355 million.

Meanwhile, Incyte entered into a collaboration agreement with China-based Innovent Biologics, Inc.

Both the companies have entered into the agreement through their respective subsidiaries, for the development of three clinical-stage product candidates — pemigatinib (FGFR1/2/3 inhibitor), itacitinib (JAK1 inhibitor) and parsaclisib (PI3Kδ inhibitor). All the three candidates were discovered and developed by Incyte.

Share Price Performance

Incyte’s stock has gained 24.1% in the past six months, worse than the industry’s decline of 14.4%.

Earnings Whispers

Our proven model does not conclusively show that Incyte will beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: For Incyte, Earnings ESP is +17.82%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Zacks Rank: Incyte currently carries a Zacks Rank #5 (Strong Sell). While the company’s positive ESP is favorable, an unfavorable rank makes surprise prediction difficult. Moreover, we caution against stocks with a Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are two health care stock worth considering with the right combination of elements to beat on earnings:

Mallinckrodt MNK has an Earnings ESP of +2.25% and a Zacks Rank #2. The company is scheduled to report results on Feb 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

ACADIA Pharmaceuticals Inc. ACAD has an Earnings ESP of +3.89% and a Zacks Rank #3.

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