Incyte (INCY), a Delaware-based biopharmaceutical company, is focused on developing and commercializing oncology products to cater to unmet medical needs. As of June 7, 2016, Incyte was trading at a forward PE (price-to-earnings) multiple of 114.9x. The industry average is ~25.6x.
Over the past year, Incyte’s forward PE has traded at 66.3x–383.6x. That’s much higher than its peers, including Vertex Pharmaceuticals (VRTX), Amag Pharmaceuticals (AMAG), and Medivation (MDVN), which trade at 47.1x, 3.8x, and 35.6x, respectively.
The fundamental factors affecting stock prices and valuation include the performance of existing products, new and existing collaborations, and results of clinical trials and product approvals. In this series, we’ll look at the performance of Incyte’s existing products and other factors that are driving the company’s revenues. In the process, we’ll get a better understanding of the drivers.
From an investor’s point of view, the two best valuation multiples for companies such as Incyte are forward PE and EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization), considering the stable and visible nature of their earnings.
PE multiples represent what one share can buy for an equity investor. However, in the case of Incyte, PE multiples are too high compared to its peers in the biotechnology industry.
On a capital-structure-neutral and excess-cash-adjusted basis, Incyte currently trades at ~70.8x. That’s much higher than its competitors such as Vertex Pharmaceuticals (VRTX), Amag Pharmaceuticals (AMAG), and Medivation (MDVN). They have forward EV-to-EBITDA multiples of 50.7x, 5.3x, and 27.9x, respectively.
Stock price performance
On June 6, 2016, Incyte’s stock value fell 21.5% over the last 12 months. The PowerShares Dynamic Biotech & Genome ETF (PBE) fell ~19.4% during the same period. PBE holds 5.1% of its total assets in Incyte.
Analysts estimate that Incyte stock has the potential to return ~7.0% over the next 12 months. Their recommendations show a 12-month target price of $91.46 per share compared to $85.49 per share as of June 6, 2016. About 89% of analysts recommend a “buy,” and 11% recommend a “hold,” according to a Bloomberg consensus. Changes in analysts’ estimates and recommendations are based on changing trends in the stock price.
In the next part of our series, we’ll see why Incyte reported growth in 1Q16.