Understanding Incyte’s 2Q17 Revenue Stream

As we discussed previously in this series, Incyte (INCY) reported revenues of ~$326.4 million for 2Q17, which represents 32.5% revenue growth, compared with ~$246.3 million in 2Q16. The revenue growth was driven by the increased demand for Jakafi.

Incyte’s business revenues include revenues from three sources: product sales, royalty revenues, and contract revenues.

The product portfolio includes two products, Jakafi and Iclusig. Incyte sells Jakafi in US markets, and Jakafi revenues rose to $276.0 million in 2Q17—a 32.6% growth over its 2Q16 revenues of $208.1 million. This growth was driven by increased sales volumes and drug prices in the US. Wall Street analysts estimate that Jakafi revenues will cross $1 billion in 2017 in US markets.

Iclusig reported revenues of $15.0 million in 2Q17, compared with $4.0 million in 2Q16. The drug was acquired from Ariad Pharmaceuticals (ARIA) in June 2016, and so the 2Q16 revenues represent revenues only for the part of 2Q16 after the drug was acquired.

Incyte collaborates with Novartis (NVS) for the development and commercialization of Jakafi outside of US markets for all hematologic and oncologic indications. Novartis sells this drug under the name Jakavi outside the US.

Incyte also collaborates with Eli Lilly (LLY) for the marketing of Olumiant (baricitinib) worldwide. Olumiant was approved in February 2017 by the European Commission, and Japan’s Ministry of Health, Labor, and Welfare approved Olumiant on July 3, 2017.

Olumiant’s total product royalty revenues reached $34.77 million for 2Q17, compared with $25.96 million in 2Q16. This includes $33.9 million from Novartis toward royalties from Jakavi sales and ~$0.9 million from Eli Lilly toward royalties from Olumiant sales during 2Q17.

Incyte has collaborative research and license agreements with Novartis and Eli Lilly. The contract revenues are related to milestones payments. For 2Q17, no contract revenues were reported, compared with its contract revenues of $8.2 million in 2Q16.

To divest company-specific risks, investors can consider ETFs like the VanEck Vectors Biotech ETF (BBH), which has ~4.4% of its total assets in Incyte (INCY). BBH also has 7.1% in Allergan (AGN), 3.9% in BioMarin Pharmaceutical (BMRN), and 4.6% in Illumina (ILMN).