Incyte Should Consider Significant Stock Buyback And Prioritize R&D, Analyst Recommends

Tuesday, Incyte Corporation INCY agreed to acquire Escient Pharmaceuticals for $750 million.

Escient’s pipeline includes EP262, a small molecule antagonist of Mas-related G protein-coupled receptor X2 (MRGPRX2), and EP547, a first-in-class oral MRGPRX4 antagonist.

“EP262 and EP547 are complementary additions to our portfolio, providing an opportunity to leverage our expertise, address the needs of patients with inflammatory diseases, and additional potential launch opportunities starting in 2029,” said Hervé Hoppenot, Incyte’s CEO.

With this update, Cantor Fitzgerald has initiated coverage on Incyte with a Neutral rating. 

The Cantor analyst suggests that Incyte’s shares are undervalued primarily due to the cash and expected cash flow from Jakafi and Opzelura but expresses reservations about the company’s pipeline prospects. 

However, Incyte’s stock has declined by 31% in the past year due to concerns about the 2029 patent expiration for Jakafi, its high-margin drug.

Both growth and value investors are hesitant to support the company’s current strategy. Value investors particularly note Incyte’s reluctance to return cash to shareholders. A major stock buyback before pivotal pipeline updates could alleviate concerns and bolster valuation.

The analyst questions Incyte’s ability to allocate over 40% of its revenue to R&D efficiently and suggests prioritizing high-return pipeline candidates. 

Cantor highlights the potential value of acquiring U.S. rights to MorphoSys AG’s MOR pelabresib, which could complement Jakafi. 

Despite optimism for certain pipeline assets like povorcitinib, the analyst remains cautious about others lacking differentiation or strong scientific rationale.

William Blair suggests that although the approval of another significant asset by the end of the decade will benefit Incyte in the long term, investors are seeking assets that can generate revenue before the patent exclusivity of Jakafi expires in 2028. 

They maintain their positive outlook on Incyte, emphasizing that favorable Phase 3 results with povorcitinib in hidradenitis suppurativa in 2025 could alter perceptions and reaffirm their recommendation to Outperform.

Regarding the Escient deal, William Blair highlights the intriguing potential of the MRGPRX2 target. Initial data in chronic inducible urticaria suggests that EP262 complements the company’s existing inflammation and immunology franchises, tapping into significant market opportunities.

Read Next: Goldman Sachs Downgrades Incyte Amid Concerns Over Jakafi Studies, Competitiveness.

Price Action: INCY shares are up 0.25% at $52.05 at the last check Tuesday. 

Illustration of Phrama lab worker created with MidJourney.