The biotech market can be an attractive investing pool. Its propensity for generating strong returns over the years, with the help of some groundbreaking products, is a constant reminder to investors of the potential it possesses. However, speculators can attest to the industry’s unpredictability. High levels of competition, lengthy drug development processes, and somewhat disloyal clientele are among the factors that have given it a reputation as a high risk/high reward option. This, consequently, deters many investors from taking a risk on a potential breakout stock. The caution is merited, indeed. But statistical data for a new myelofibrosis drug created by Incyte Corp. (INCY) has become difficult to ignore. The drug is called Jakafi (ruxolitinib), and investors may take solace in the long-term strategy that the company has devised for it.
Jakafi is a treatment for patients suffering from intermediate or high-risk myelofibrosis. This includes primary MF, post-polycythemia vera MF, and post-essential thrombocythemia MF. It is the first and only product to be approved by the FDA for treatment of myelofibrosis. But the drug is still being tested for other applications. In fact, it was recently discovered in a Phase 2 trial that Jakafi, combined with capecitabine, could have a significant impact on the reduction in size of solid tumors, and could be used as an effective treatment for refractory pancreatic cancer. These alternative uses would likely bolster the drug’s growth potential, but its position as the only FDA-approved treatment already provides some security.
Further comfort can be taken in the significant strides that the drug has made with local physicians, which has helped the top line. Despite a few bumps in the road in 2012, and a case of progressive multifocal leukoencephalopathy (PML) reported in a single patient in 2013, physicians have expressed great trust in the drug, and are beginning to prescribe it (at low doses) to patients suffering from less severe forms of MF. Low-dose prescriptions have increased by 46% over the course of the first six months of the year alone. What’s more, the rate of discontinuation has dropped significantly over the last few quarters. Maintaining use for diagnosed patients is likely the biggest key to long-term growth for the drug. These stats augur well for Incyte, whose pipeline necessitates steady cash flows to roll out its next potential key drug.
Indeed, Jakafi could be a cash cow as it targets a distinct market. Management set revenue guidance for calendar 2013 at $225 million, based on patients that have been reached and potential cases that remain on the market. Too, approval for second-line treatment of refractory pancreatic cancer would generate yet another revenue stream. Though not as lucrative as the myelofibrosis market, this treatment has the potential to yield over $200 million in revenues over the next five years. Too, the company has begun testing Jakafi as a potential first-line treatment, which could double that figure over the same term.
At this juncture, many biotech enterprises are experiencing quality growth, particularly the large-cap companies in the industry such as Amgen Inc. (AMGN) and Regeneron Pharmaceuticals (REGN). The recovering economy has increased spending capabilities, allowing these corporations to get the word out about their new products and the good they can do for patients. It seems safe to say that these trends could continue over the next year or so, auguring well for Jakafi. We expect that the drug will represent 60% of Incyte’s top line next year. And judging by recent lab results, that figure could grow once the drug is further tested and applied to the treatment of other infectious diseases.
Incyte Corp. shares have advanced over 70% since our June report. And although this increase is substantial, the financial benefits Jakafi can generate for the company have produced a buzz still worth monitoring. The risk that an investor would generally take on with an investment here should not be overlooked. The number of potential users of the drug and the total level of acceptance by local physicians are variables that could still change. But from a long-term perspective, the success of this drug may very well pave the way for other market participants, and will remain a big story in the biotech industry for years to come.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.