By: Randall Radic
Long-term growth investors should take a close look at biotech, especially Incyte Corporation (INCY). Essentially biotech outfits function as R&D for big pharma. Big pharma sits back while the biotech companies develop innovative technology and new drugs. Then when biotech discovers the Next Big Thing, big pharma buys them out.
Right now, Incyte looks like a winner over the next five years. Incyte’s share price at the end of Friday’s trading was $100.63, down a bit. Analysts put Incyte’s target price for 2017 at $107, with some going so far as to predict $115.
Incyte’s primary moneymaker is Jakafi, a JAK1/JAK2 inhibitor, used to treat myelofibrosis and polycythemia. Jakafi should bring in over $1 billion in 2017. Gilead Sciences’ (GILD) candidate, called momelotinib, failed to equal Jakafi’s efficacy during late-phase trials. This means Incyte retains a virtual monopoly with Jakafi.
Of course, the future of any biotech company is only as good as its pipeline. And Incyte’s pipeline is loaded with prospective winners, like epacadostat, a therapy for melanoma. There’s also another JAK1 inhibitor, called baricitinib, a therapy for rheumatoid arthritis. Baricitinib is licensed to Lilly (LLY), which is awaiting approval from the FDA on the therapy. FDA approval would mean another $1 billion per year for Incyte. On top of that, Incyte is developing a promising fibroblast growth factor receptor for treatment of bladder cancer and bile duct cancer. Incyte anticipates this drug therapy may be granted accelerated approval by the FDA.
These innovative therapies make Incyte a prime target for acquisition by big pharma. Big pharma analysts foresee Gilead Sciences making a move on Incyte in the near future. And if not Gilead Sciences, then some other big pharma company will make a move. That’s the way big pharma operates. The acquisition of Incyte would provide a very polite premium to shareholders.
Regardless of any movement on the part of big pharma, analysts expect Incyte’s earnings per share to grow 143% in 2017, and 62% during the next five years. Incyte’s sales growth since 2012 has been 34.7%. And the icing on the cake is that analysts expect Incyte’s profits to increase 58% per year for the next five years.
If just one drug in the company’s pipeline scores, revenue will skyrocket, along with share price. Naturally, another successful cancer therapy would make Incyte even more attractive to big pharma, any company looking to augment its oncology therapies. In the end, Incyte appears to be a strong long-term play for growth investors.
Investors should look for revenue to grow during 2017 and the following four years, with the company’s share price increasing accordingly. FDA approval of baricitinib will produce an immediate jump in Incyte’s share price, along with increasing the probability of acquisition. By the time 2018 rolls around, Incyte’s share price could hit the $125 mark.