01—Abstract
Summary
Summary of the 10-K filed February 12, 2016. Cited figures are marked; the original filing is the authoritative source.
Incyte Corporation's 10-K for fiscal year 2015 shows the company reaching its first full year of net income, with net income of $6.5 milliona on total revenues of $753.8 million, compared with a net loss of $48.5 million on $511.5 million of revenues in 2014.
Growth was driven by JAKAFI (ruxolitinib), which generated product revenues, net of $601.0 millionb in 2015 versus $357.6 million in 2014, with the filing attributing the increase to a volume increase of $187.5 million and a price increase of $55.9 million. Product royalty revenues from Novartis's sales of JAKAVI outside the United States rose to $74.8 million, and contract revenues were $77.9 million, down from $104.8 million, mainly because of lower Novartis milestone recognition ($65.0 million in 2015 versus $92.0 million in 2014). The company remains dependent on JAKAFI, which is approved in the U.S. for intermediate or high-risk myelofibrosis and uncontrolled polycythemia vera.
The filing also highlights significant pipeline setbacks and balance sheet considerations. In January and February 2016, Incyte decided to discontinue several ruxolitinib solid tumor studies, including the JANUS 1 and JANUS 2 pancreatic cancer studies, after interim analyses did not show sufficient efficacy, and it also discontinued the INCB39110 pancreatic cancer study. Partner Eli Lilly submitted an NDA and MAA for baricitinib in rheumatoid arthritis in January 2016, triggering $35.0 millionc and $20.0 million milestone payments to Incyte.
At December 31, 2015, the company reported cash, cash equivalents and marketable securities of $707.8 milliond, total debt principal of $749.8 million, and an accumulated deficit of $1.8 billion. Stockholders' equity was $171.2 million, up from a deficit of $81.6 million a year earlier. Key risks for investors include reliance on JAKAFI for substantially all revenues, exposure to generic competition after the Hatch-Waxman four-year period expired in November 2015, reimbursement pressures, single-source manufacturing for JAKAFI, and the conversion features of the 2018 and 2020 convertible senior notes, which became convertible on January 1, 2016 through at least March 31, 2016.
02—Key points
Key Highlights
- Net income of $6.5 million for 2015, compared with a net loss of $48.5 million in 2014; diluted EPS of $0.03 versus $(0.29).
- Total revenues of $753.8 million for 2015, up from $511.5 million in 2014.
- JAKAFI product revenues, net of $601.0 million, up from $357.6 million, including a $187.5 million volume increase and a $55.9 million price increase.
- Contract revenues declined to $77.9 million from $104.8 million, reflecting lower Novartis milestone recognition ($65.0 million in 2015 versus $92.0 million in 2014).
- Research and development expense rose to $479.5 million from $347.5 million, including a $25.0 million upfront payment to Hengrui and a $20.2 million charge related to the Agenus upfront payment.
- Discontinued multiple ruxolitinib solid tumor studies, including JANUS 1 and JANUS 2 in pancreatic cancer, after interim efficacy analyses in January and February 2016.
- Cash, cash equivalents and marketable securities of $707.8 million at December 31, 2015, against total convertible debt principal of $749.8 million; stockholders' equity of $171.2 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Incyte kept $0.01.
- Revenue$753.8M100.0%
- Cost of revenue−$27.0M3.6%
- Gross profit$726.8M96.4%
- Operating costs−$676.1M89.7%
- Operating income$50.7M6.7%
- Interest, other & tax−$44.1M5.9%
- Net income$6.5M0.9%
Where FY2015 revenue went
$753.8M- R&D: $479.5M, 64% of revenue
- SG&A: $196.6M, 26% of revenue
- Net income: $6.5M, 0.9% of revenue
- Cost of revenue: $27.0M, 3.6% of revenue
- Interest, other & tax: $44.1M, 5.9% of revenue
Kept 0.9% as net incomeNet income $6.5M · 0.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 12, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $753.75M$511.50M | +47.4% |
| Cost of Revenue | $26.97M$3.00M | +797.9% |
| Gross Profit | $726.78M$508.49M | +42.9% |
| R&D Expenses | $479.51M$347.52M | +38.0% |
| SG&A Expenses | $196.61M$165.77M | +18.6% |
| Operating Expenses | $703.10M$516.30M | +36.2% |
| Operating Income | $50.65M-$4.80M | +1154.4% |
| Interest Expense | $45.60M$46.83M | −2.6% |
| Net Income | $6.53M-$48.48M | +113.5% |
| EPS (Basic) | $0.04$-0.29 | +113.8% |
| EPS (Diluted) | $0.03$-0.29 | +110.3% |
| Shares Outstanding (Basic) | 179.60M167.95M | +6.9% |
| Shares Outstanding (Diluted) | 187.30M167.95M | +11.5% |
05—Questions
Frequently Asked Questions
Is Incyte now profitable, and what drove the swing?
Incyte reported net income of $6.5 million for 2015, compared with a net loss of $48.5 million in 2014. The improvement came mainly from JAKAFI product revenues, which rose to $601.0 million from $357.6 million, although the filing notes the company expects to continue incurring losses in future periods and cannot assure it will maintain profitability. The 2015 result also benefited from a $106.4 million tax benefit from utilizing U.S. net operating loss carryforwards related to a taxable gain on an intellectual property transfer to a Swiss subsidiary.
How dependent is Incyte on JAKAFI?
Very dependent. The filing states that the company derived substantially all of its 2015 revenues from JAKAFI product revenues, JAKAVI product royalties, and collaborations and licensing. JAKAFI is the only FDA-approved product for myelofibrosis and polycythemia vera, and the company notes that none of its other drug candidates has received regulatory approval.
What pipeline setbacks did Incyte disclose?
In January and February 2016, planned interim analyses did not show sufficient efficacy to warrant continuation of several ruxolitinib solid tumor studies. Incyte discontinued the JANUS 1 study of ruxolitinib with capecitabine in second-line pancreatic cancer, the JANUS 2 pancreatic cancer study, Phase II colorectal, breast and lung cancer studies, and the INCB39110 first-line pancreatic cancer study. Epacadostat is expected to begin Phase III trials in 2016, and baricitinib's rheumatoid arthritis NDA and MAA were submitted by Lilly in January 2016.
What is Incyte's debt and liquidity position?
At December 31, 2015, aggregate principal of convertible senior notes was $749.8 million, consisting of $375.0 million of 0.375% notes due 2018 and $374.8 million of 1.25% notes due 2020. Cash, cash equivalents and marketable securities totaled $707.8 million. The notes became convertible on January 1, 2016 through at least March 31, 2016, and management intends to settle conversions in common shares. Management believes cash will be adequate for at least the next twelve months.
What risks should investors weigh most heavily?
Key risks include reliance on JAKAFI, reimbursement and pricing pressure (including government rebates that rise if prices increase faster than inflation), potential generic competition after the Hatch-Waxman patent challenge window opened in November 2015, single-source third-party manufacturing for JAKAFI with API supply from Chinese-based companies, the possibility that clinical trial results do not support approvals, and the company's history of operating losses and accumulated deficit of $1.8 billion.
06—Continue