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Why Incyte's Q1 Loss Isn't As Bad As It Looks

By Keith Speights - May 5, 2020 at 1:36PM

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The biotech's revenue increased solidly in Q1. And it had a very good explanation for its net loss.

Like most stocks, Incyte (INCY 0.31%) plunged during the market crash that began in late February and extended into March. But Incyte has rebounded more strongly than most, with its shares up by a double-digit percentage year to date.

The biotech reported its first-quarter results before the market opened on Tuesday, with some good news and some bad news. Here are the highlights from Incyte's Q1 update.

A scientist in a lab coat filling a test tube with a dropper

Image source: Getty Images.

By the numbers

Incyte reported revenue in the first quarter of $568.5 million, a 14% year-over-year increase. This result topped the consensus Wall Street Q1 revenue estimate of $556 million.

The company announced a net loss in the first quarter of $720.6 million, or $3.33 per share, based on generally accepted accounting principles (GAAP). In the prior-year period, Incyte recorded positive net income of $102.3 million, or $0.47 per share. 

On a non-GAAP adjusted basis, Incyte's net loss in the first quarter totaled $618.9 million, or $2.86 per share. This was much worse than the company's adjusted net income of $134.5 million, or $0.62 per share, in the same quarter of 2019. It also fell well short of the average analysts' Q1 adjusted earnings estimate of $0.61 per share.

Behind the numbers

The reason for Incyte's solid revenue growth can be summed up in one word: Jakafi. Net product sales for the blood cancer drug jumped 22% year over year in Q1 to $459.5 million. In addition, Incyte made $56.3 million in royalties from Novartis' sales of the drug under the Jakavi brand name. This royalty revenue reflected a 24% increase from the prior-year period.

However, Incyte's fastest-rising star is Olumiant. The biotech's royalties from Lilly's sales of the rheumatoid arthritis drug totaled $25.4 million in the first quarter, up a whopping 59% year over year. Leukemia drug Iclusig also continued to perform well, with sales rising 32% higher to $27.2 million.

How did Incyte manage to lose money with its overall revenue increase? The loss isn't as bad as it might seem. Incyte recorded $805 million in additional research and development expenses in the first quarter related to its licensing and collaboration agreement with MorphoSys. Although the deal caused Incyte's Q1 bottom line to look bad (at least on the surface), it also brought a promising blood cancer drug candidate, tafasitamab, into Incyte's pipeline.

Looking ahead

Incyte stuck by its previous outlook for full-year 2020. It continues to project Jakafi net product revenue will be between $1.88 billion and $1.95 billion. The company also still anticipates Iclusi net product revenue will fall between $100 million and $105 million.

The COVID-19 pandemic hasn't presented any major issues for Incyte so far. However, the biotech stated that it could experience problems with enrolling new patients in clinical trials due to the novel coronavirus outbreak.

There are several key potential catalysts for the biotech stock on the way. Incyte hopes to win FDA approvals for capmatinib in treating advanced non-small cell lung cancer and for tafasitamab in combination with Revlimid in treating relapsed/refractory diffuse large B-cell lymphoma (DLBCL). In addition, the company expects to file for approval for ruxolitinib cream by the end of the year.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Incyte. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Incyte Corporation Stock Quote
Incyte Corporation
INCY
$73.99 (0.31%) $0.23
Eli Lilly and Company Stock Quote
Eli Lilly and Company
LLY
$308.08 (2.63%) $7.89
Novartis AG Stock Quote
Novartis AG
NVS
$85.68 (0.12%) $0.10
MorphoSys AG Stock Quote
MorphoSys AG
MOR
$5.92 (1.54%) $0.09

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