Note to biotechs: You can change the way you recognize revenue. And you can issue guidance. But don't do both at the same time. Biotech investors understand drugs, clinical trials, Food and Drug Administration regulations, and what it takes to sell a drug.
But we don't do math.
That's the right thing to do, as the company has gained more confidence in rebates and potential returns. A sell-in model is how established biotechs recognize revenue. It would be easier to just start with the sell-in method, but most biotechs can't predict rebates and returns with a high enough confidence to start with that method. Incyte isn't the first biotech to have to go through the change a few quarters into its launch, and it won't be the last. Investors in Arena Pharmaceuticals
The problem Incyte has run into is that it issued guidance that net product sales will be between $120 million and $135 million this year. That'll include the sell-through sales in the first two quarters, the sell-in sales for the next two quarters (assuming the change is made next quarter), and a catch up amount for the drug in pharmacies when the change is made.
So far this year, Incyte had shipped $60.3 million of Jakafi and $53.1 million of product was sent to patients and recognized as gross revenue, so there's $7.2 million of deferred revenue. And then to get to the apples-to-apples comparison with the net product guidance, you have to look at the net to gross conversion, which puts net product revenue at $49 million. Subtract that and the deferred revenue out, and it looks like Incyte is expecting between $63.8 million and $78.8 million in net sales in the second half, which implies growth of 13.5% and 40% growth over the net sales in the first half adjusted for the deferred revenue.
Did I mention we don't like math? You could see how a few people might hit the sell button.
Biotechs might be best off just keeping their guidance to themselves, or Incyte could do like Regeneron Pharmaceuticals
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