Incyte was one of the most innovative biotech companies in the world.
Jakafi (ruxolitinib) changed the lives of patients that are suffering from 1) polycythemia vera, 2) myelofibrosis, and GVHD.
Its reputation as a biotech company peaked with epacadostat – an investigational product that had VERY HIGH EXPECTATIONS for combination use with Keytruda / pembrolizumab – it was supposed to be THE IMMUNO-ONCOLOGY DRUG… THAT IS UNTIL IT FAILED MISERABLY
In retrospect, Incyte had probably levered the company too much to epacadostat – in that it did not have much of pipeline to drive growth.
3-4 years later, Incyte has turned from one of the most innovative biotech company to a low quality spec pharma company with a history of innovation.
WHY DO I THINK INCYTE IS NOW A LOW QUALITY SPEC PHARMA? FOR TWO PRIMARY REASONS:
FIRST: INCYTE’S FLAGSHIP PRODUCT JAKAFI IS NOW RELYING SIGNIFICANT ON PRICE INCREASE THAN VOLUME GROWTH
For a drug that costs $16K per month (list price), incyte raised price twice in 2021 and raised price again in January 2022.
Companies tend to increasingly raise prices more aggressively when they can’t drive volume growth because they still need to deliver growth to sustain HIGH SHARE PRICES.
SECOND: POST-JAKAFI PRODUCTS ARE EITHER ME-TOO PRODUCTS OR ME-TOO LICENSED PRODUCTS
Incyte has multiple commercial products now – but they are really not differentiated products – they have tried to become fast followers – unfortunately, there is no lunch left behind for fast followers in biotech – that is why first in class products are SO important.
These products simply are not enough to offset massive patent cliff of Jakafi (expected in 2028) – hodge podge of small products are not only inefficient, but also not profitable because there is no pricing power – it just comes down to the capability of sales people (not clinical data) – which is spec pharma model.
THIRD: STRATEGIC SHIFT TO DERMATOLGY FOR GROWTH… IT IS TOUGH AND NEW AREA
Incyte is now launching topical JAK inhibitor cream – Opzelura – a reformulation of Jakafi. Initial uptake looked promising … because they are giving out cream for free. Sample batches had texture issue, so they are essentially giving out commercial products as samples.
HEAVY SAMPLING (i.e. giving product for free) resulted in Incyte collecting on 5 dollars on every 100 dollar of gross sales. Big concern if you are trying to make money.
Looking ahead, you need to look at NBRx share – after two months of uptake, NBRx is now flat. The right chart in below shows Incyte share gain has largely plateaued – even though the company essentially giving out product for FREE.
Incyte is now trying to build out dermatology franchise – however, pipeline consists of undifferentiated collection of random drugs or life cycle extension products. this means that Incyte will resort to M&A to bring in dermatology pipeline assets.
SO.. IS THE FUNDAMENTAL DETERIORATION OF INCYTE’S COMMERCIAL PIPELINE PORTFOLIO THE REASON WHY BAKER BROTHERS MAY BE SELLING THE STOCK?
Last week, Baker Brothers registered their Incyte shares for potential sale – their stake is 33.4M shares or 15% of the company.
Baker Brothers representative serves on the board – will be interesting to watch.
I am certainly bearish on Incyte fundamentally – do your own DD!
*not investment advice
