Many investors probably have not heard of Incyte (NASDAQ: INCY) and that is a shame. The stock is up over 80% in the past year and Jim Cramer thinks it can easily go another $60 higher. Should you be as bullish on Incyte as Mr. Cramer? Or are you better off investing elsewhere? Let’s take a closer look at the company to find out.
Incyte is a pharmaceutical company that started back in 1991 in Palo Alto, California and they have since moved their headquarters to Delaware. The company stock started to trade in 1993.
The company deals primarily with cancer drugs and has one drug on the market, Jakafi, which has been a major success for them. This drug is marketed in the United Stated and has a patent that doesn’t expire until 2027. The same version on the drug, Iclusig is sold in Europe.
Another drug Baricitinib, which is an arthritis drug, should be approved for sale in the coming months. Finally, Epacadostat, another cancer drug, is in phase 3 of trials and is showing positive signs of being successful. All indications are this drug will come to market in 2018 or 2019.
The Economics of Incyte
Earlier this year, Incyte reported 4th quarter and full year 2016 earnings. Highlights included an increase in full year revenue of 47% and operating income up 186%. Earnings per share for the year were up $0.03 compared to 2015 at $0.54.
They noted that Jakafi, their main cancer drug, earned $1.4 billion for the year.
Outlook for 2017 was positive as well. They expect both Jakafi and Iclusig (the European version of Jakafi) to continue to provide strong income streams, earning roughly the same amount for 2017 as they did in 2016. In fact, they estimate that these drugs could potentially pull in $2 billion annually in the coming years as there are no other drugs on the market that do what Jakafi does.
If the timing works out, Baricitinib will come to market in 2017. Incyte licensed this drug to Lily. If certain terms are met, Lily owes Incyte a $165 million payment. In addition to this, Incyte is due 20-29% of sales from the drug. Finally, Incyte has confirmed they have an additional 11 cancer drugs in their pipeline.
When you take all of this into account, 2017 for Incyte should be another spectacular year in terms of earnings.
Why You Should Consider Incyte
I agree with Jim Cramer that this stock is a buy. Not only are the fundamentals of the company rock solid, but they have a handful of potential drugs in the pipeline that they can earn revenues on. Even if a couple of the drugs fail in during the testing phase, there are enough there to increase revenues regardless.
For example, with Jakafi having no competition, this drug alone can continue to support the company until its patent expires. While other drug manufacturers could enter the space during this time, it takes years for a drug to go through testing and trials. So the monopoly Jakafi has should continue.
And there of course the rumors of takeover. Many other companies would love to have the pipeline of potential drugs that Incyte has. I talked about a couple of them the other day. While I doubt any of those companies would play a part in a takeover of Incyte, there are many others out there that would.
So I agree with Jim Cramer to buy this stock now. You benefit from a rising stock price as new drugs are approved and revenues grow. And you get icing on the cake if another company tries to buy out Incyte, which would lead to a nice bump in stock price.
However, I would not buy this stock in hopes of it getting bought by another company. Buy it for the potential growth of the company.
I understand however that some investors might be cautious seeing how the stock is up 80% in the last year. But this one still has room to grow, so buy now.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.