Incyte's Established Jakafi Market and Launching Dermatology Drug Opzelura Support Narrow Moat

Sector Strategist

Karen Andersen

Incyte has build a solid foundation over the past decade with hematology drug Jakafi, and the approval of the same active ingredient as oral dermatology drug Opzelura is expanding the firm's focus to new therapeutic areas. We think the strategy to find more effective combination therapies in hematology and build a larger oncology and dermatology portfolio is solid, although we're waiting for key data before assuming the firm can grow through Jakafi's patent expiration in 2028. 

Jakafi initially gained traction in 2011 as the only drug approved for severe myelofibrosis, a rare blood disorder. Jakafi's stronghold of the MF market is likely to continue, although new drugs are entering the market for subsets of the population. Incyte expanded Jakafi’s label to polycythemia vera (2014), steroid refractory acute graft versus host disease (2019), and chronic GvHD (2021) should together push peak U.S. sales to $3 billion. Incyte's ALK2 and BET-targeted drugs are being combined with Jakafi in myelofibrosis, which could lead to a fixed-dose combination regimen that refreshes this franchise beyond Jakafi's patent expiration. 

In dermatology, we see strong potential for a topical version of the active ingredient in Jakafi (ruxolitinib), which was approved in 2021 in atopic dermatitis as Opzelura and received a label expansion in vitiligo in 2022. While the atopic dermatitis market is crowded, Opzelura's launch is going strongly, and with no other approved vitiligo drugs, unmet need in this indication is high.

In oncology, the approval of lymphoma drug Monjuvi (part of a collaboration with MorphoSys) in 2020 in the U.S. and 2021 in Europe also expands Incyte's hematology portfolio, and studies are in progress testing the drug in earlier-stage patients. Incyte received approval for its PD-1 antibody Zynyz in the niche indication of Merkel cell carcinoma but continues to move forward in broader indications, and several oral PD-L1 programs could also move forward with additional data.

Business Strategy & Outlook

Intangible assets around the core Jakafi franchise remain the foundation of Incyte's narrow moat, although additional drug approvals have begun to offer more support and diversification, which helps defend the moat against future patent expirations. While we expect Jakafi patent loss in 2028, we still see returns on invested capital north of 15% through most of our 10-year forecast period, due to a portfolio of other products with significant expected sales over the next decade and royalty streams from collaborators on additional Incyte-discovered drugs. We think the firm does face environmental, social, and governance risks, particularly related to potential U.S. drug price-related policy reform (more than 70% of Incyte's revenue comes from U.S. sales of Jakafi) and ongoing potential for product governance issues (including litigation). While we have factored these threats into our analysis, they are not material to our valuation or moat rating.

In partnership with Novartis (which holds international rights), Incyte has built a dominant Jakafi franchise, which is approved to treat rare bone marrow cancers myelofibrosis and polycythemia vera as well as graft versus host disease (severe inflammation following transplant). Myelofibrosis is the largest and most established indication (approved since 2011), and Jakafi has a roughly 50% share of myelofibrosis patients in the U.S. (the remainder are either intolerant or refractory to Jakafi, or haven't yet begun treatment). Competition to Jakafi has remained relatively insignificant despite numerous potential challengers in myelofibrosis over the years. Bristol's Inrebic is now approved and has strong efficacy, but serious safety issues will likely prevent it from competing with Jakafi as a first treatment for myelofibrosis patients, and the drug will instead likely be reserved for those failing or intolerant of Jakafi. CTI's Vonjo (approved 2022) could be a slightly more significant competitor among patients with low platelet counts, and GSK's JAK/ALK2 momelotinib had positive phase 3 data as a second-line treatment that could help it carve out a niche among anemic myelofibrosis patients (likely launching in 2023). That said, we think Jakafi will preserve significant first-line share, and several drug candidates are being tested in combination with Jakafi rather than aiming to replace it (for example, MorphoSys' BET inhibitor CPI-0610 should have phase 3 data in combination with Jakafi in 2024). We think Jakafi's strong efficacy and long-term dominance will make it difficult to displace. Beyond myelofibrosis, Jakafi is also seeing strong growth in polycythemia vera (another progressive myeloproliferative neoplasm, approved in 2014) and graft versus host disease (approved as an acute option in 2019 and chronic disease in 2021). Jakafi patents expire begin to expire in 2027, with strong protection through 2028 for the active ingredient, but Incyte has several strategies for lengthening patent protection on the franchise, including a once-daily formulation (versus the current twice-daily regimen) as well as combination trials with other oral pipeline therapies (with targets including ALK2 and BET). We expect Jakafi revenue (including U.S. sales and international royalties from Novartis) to peak at $3.5 billion by 2027, with double-digit declines beginning in 2028.

Beyond the Jakafi franchise, Incyte has been rapidly expanding its approved portfolio of drugs. In 2020, Incyte has received three Food and Drug Administration approvals: lung cancer drug Tabrecta (capmatinib) for first-line or relapsed patients with specific MET mutations (Incyte receives a royalty from Novartis); Pemazyre (pemigatinib) in cholangiocarcinoma; and blood cancer drug Monjuvi (tafasitamab), from a partnership with MorphoSys. We see Tabrecta having less of an impact on Incyte's sales and ROICs, due to its niche market (MET exon 14 skipping), competition from Merck KGaA's similar drug Tepmetko, and the royalty agreement with Novartis. While Incyte has full rights to Pemazyre, the initial indication is also niche. Tabrecta and Pemazyre both have FoundationOne as their companion diagnostic; this panel screens for multiple mutations and is seeing increased uptake over individual companion diagnostic tests. We think this boosts the chances that a patient discovers their mutation status, making it easier to locate patients. We see peak sales for Pemazyre above $150 million.

Monjuvi is a differentiated drug in a relatively large indication, as it is approved as a treatment for second-line diffuse large B-cell lymphoma. The drug's long duration of efficacy and chemo-free regimen (approved in combination with blood cancer drug Revlimid) should be appealing to patients who fail the standard Rituxan/chemo first-line treatment option who aren't eligible for stem cell transplants. However, the competitive landscape is getting tougher, with Gilead's CAR-T cell therapy Yescarta now approved in the second-line setting. We assume more than $1 billion in peak global Monjuvi sales (approaching $500 million in Incyte territories), but there is significant upside if the drug gains approval in combination with Rituxan/chemo in the first-line setting; a phase 3 study should have data by 2025. That said, phase 3 Polivy data in the first-line setting led to expanded approval of Roche's competing drug in 2023, putting it well ahead of Monjuvi in this setting. 

In dermatology, Incyte received FDA approval of Opzelura (ruxolitinib cream) in 2021 based on solid phase 3 data; positive phase 3 data supported approval in vitiligo in 2022 in the U.S. and in 2023 in Europe. Overall, we remain bullish on ruxolitinib's potential in both indications, although the placebo comparator in atopic dermatitis is likely to mean the treatment will be a second-line option (following steroids). That said, there is significant unmet need for patients with mild to moderate disease, before resorting to treatments aimed at patients with moderate to severe disease like Dupixent (injectable therapy) or oral JAK inhibitors (potential cardiovascular safety issues). Vitiligo could also be a significant opportunity, with no approved treatments and millions affected; however, demand is harder to assess in vitiligo, as this skin disorder causes depigmentation that many patients may not seek to cure. We assume nearly $2 billion in peak potential sales in both indications combined. 

Zynyz, Incyte's recently approved PD-1 antibody, is well behind the first checkpoint inhibitors from firms like Bristol (Opdivo) and Merck (Keytruda). However, it could allow Incyte to develop future combination regimens that could prove more differentiated, and key data in first-line lung cancer is also expected in 2024. In the long run, retifanlimab could see success in combination with targeted oral cancer therapies, including an oral PD-L1 that could be used in the maintenance setting following an upfront retifanlimab/chemotherapy combination. Checkpoints could easily be a more than $1 billion opportunity for Incyte, but we model a 20%-30% probability of approval in key indications, given the early stage of testing.

Narrow

Economic Moat

Incyte

Incyte Corp. is a biopharmaceutical company, which engages in the discovery, development and commercialization of proprietary therapeutics. Its portfolio includes compounds in various stages, ranging from preclinical to late stage development, and commercialized products such as JAKAFI (ruxolitinib), and ICLUSIG (ponatinib). The company was founded by Roy A. Whitfield in April 1991 and is headquartered in Wilmington, DE.

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Incyte Corp. is a biopharmaceutical company, which engages in the discovery, development, and commercialization of proprietary therapeutics. It focuses on hematology and oncology, and inflammation and autoimmunity therapeutic areas. The company was founded in April 1991 and is headquartered in Wilmington, DE.

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