Incyte

Incyte reported total net sales of $1.49 billion in the second quarter, an increase of 40% from the prior year. Management raised its 2026 total net sales guidance by 7% at the midpoint of its previous outlook.

Why it matters: The majority of Incyte's revenue currently comes from its hematology drug Jakafi (accounting for 55% of total net sales in the quarter), and the firm is focused on diversifying its assets as patents protecting Jakafi expire in late 2028. Incyte's acquisition of Vega adds latarcibart, which strategically expands its hematology franchise into bleeding disorders for von Willebrand disease, although the deal's ultimate value will depend on its phase 3 success and commercial execution. Incyte resolved litigation with the Centers for Medicare & Medicaid Services related to Opzelura and recorded a one-time, non-cash benefit of $246 million. It also improved its gross-to-net profile going forward from a low-60s to high-50s ratio, which means Incyte will retain more of each dollar of Opzelura's list price going forward.

The bottom line: We raised our fair value estimate to $86 per share from $71 for no-moat Incyte to reflect higher Opzelura sales and the addition of latarcibart to our model, assuming a 65% probability of approval and a 2030 launch for our base case. Shares currently trade about 48% above our fair value estimate. We continue to forecast a sharp decline in revenue in 2029 following Jakafi's patent loss, while elevated research and development spending (averaging 41% of revenue through 2035) will weigh on long-term returns. Further development and expansion of Incyte's portfolio beyond Jakafi will be crucial to the firm's long-term growth. A strong phase 3 readout for latarcibart and successful commercial launch would provide additional upside to our fair value estimate.

We raised our fair value estimate to $86 per share from $71 for no-moat Incyte to reflect higher sales for Opzelura and the addition of latarcibart to our model, assuming a 65% probability of approval in our base case and reaching the market in 2030.

Jakafi has had strong performance in MF and PV and a good launch in GvHD, and we forecast the drug will see single-digit volume growth over the next couple of years before its 2028 patent loss. We expect Jakafi revenue (including US sales and international royalties from Novartis) to peak at roughly $3.8 billion by 2027, with double-digit declines beginning in 2028 due to generic competition.

For Opzelura, we assume total sales in atopic dermatitis and vitiligo combined could peak at roughly $1.8 billion. We assign a 90% probability of approval to povorcitinib, which is in the regulatory filing process for hidradenitis suppurativa and being evaluated in phase 3 trials for more extensive vitiligo and prurigo nodularis. We model povorcitinib potential sales approaching $1 billion.

Following the approval of Monjuvi as a second-line treatment for patients with diffuse large B-cell lymphoma, we model peak global sales around $650 million. Olumiant is marketed by Eli Lilly, with Incyte receiving tiered royalties as a percentage of sales up to the high 20s, in addition to development and regulatory milestones.

We continue to forecast a sharp decline in revenue in 2029 following Jakafi's patent loss, while elevated research and development spending (averaging 41% of revenue through 2035) will weigh on long-term returns.

Further development and expansion of Incyte's portfolio beyond Jakafi will be crucial to the firm's long-term growth. A strong phase 3 readout for latarcibart and successful commercial launch would provide additional upside to our fair value estimate.

We have revised our moat rating for Incyte to a no-moat rating from a narrow moat due to concerns regarding the approaching patent cliff in 2028 for Jakafi, which accounted for 69%% of Incyte’s total 2025 revenue. The approaching patent loss highlights the important role Opzelura and Incyte’s pipeline will play in diversifying revenue. Any missteps in commercial execution, clinical trial failures or delays, or regulatory delays will negatively impact the company, as Jakafi's sales will be eroded by generic competition in a few years. Given these risks, a no-moat rating is appropriate at this time.

In partnership with wide-moat Novartis (which holds international rights), Incyte has built its Jakafi franchise. Myelofibrosis is the largest and most established indication (approved since 2011), and Jakafi holds around 53% share of the total US myelofibrosis market. Bristol's Inrebic (approved 2019) carries safety issues that will likely keep it reserved for patients failing or intolerant of Jakafi rather than as a first-line treatment. Sobi's Vonjo (FDA approval in 2022) could be a slightly more significant competitor among patients with low platelet counts, and GSK's Ojjaara (FDA approval in 2023) could carve out a niche among anemic myelofibrosis patients as a second-line treatment.

Beyond myelofibrosis, Jakafi has seen strong growth in polycythemia vera and graft-versus-host disease. However, Jakafi's patents begin to expire in late 2028. We are skeptical of Incyte's strategies for lengthening patent protection, including a once-daily formulation and combination trials with other oral pipeline therapies. We expect Jakafi revenue (US sales plus Novartis royalties) to peak at roughly $3.8 billion by 2027, with double-digit declines beginning in 2028 due to generic competition.

Jakafi is a small molecule inhibitor of JAK1 and JAK2 kinases, which makes it more susceptible to the risks of generic pressure, as small molecule drugs are much easier to develop and produce compared with large molecule drugs.

Similar to other biotechnology and pharmaceutical firms under our coverage, we think the firm faces environmental, social, and governance risks, particularly related to potential US drug price-related policy reform and ongoing potential for product governance issues. Jakafi is expensive (more than $100,000 annually), and the majority of its US sales come from Medicare Part D. Part D redesign has weighed on Incyte's intrinsic value and further supports our no-moat rating. Inflation caps on drug price increases in both Medicare Part B and Part D went into effect in 2023, which will negatively impact Jakafi's US revenue. We also think Jakafi could be subject to Medicare negotiations, although the small biotech exception pushes this from 2026 to 2029. Overall, Incyte is more exposed than its peers to US pricing risks, given its high Medicare Part D exposure, highly concentrated revenue streams, and history of price increases for Jakafi.

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 nearly $650 million in peak global Monjuvi sales, and the drug gained US approval in combination with lenalidomide and rituximab in June 2025. However, Roche's Polivy won expanded first-line approval in 2023 on strong phase 3 data, putting it 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 US 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, as other approved advanced therapies such as Dupixent and oral JAK inhibitors are aimed at patients with moderate to severe disease. Vitiligo could also be a significant growth opportunity, with no approved treatments and millions of people affected, though demand is harder to assess since some patients may not seek to treat this depigmentation disorder.

Opzelura gained US approval for children ages 2 to 11 years with atopic dermatitis, expanding its addressable patient population by 2 million to 3 million. We forecast Opzelura is on track to generate blockbuster sales of roughly $1 billion or more starting in 2026 due to strong growth in the US. Opzelura has a lengthy patent extending to 2040, which should provide healthy cash flows that management will use to invest in its pipeline.

Incyte received FDA approval in 2023 for Zynyz, a PD-1 antibody for the treatment of metastatic or recurrent locally Advanced Merkel cell carcinoma. Even though Bristol’s Opdivo and Merck’s Keytruda, both approved in 2014, preceded Zynyz, this could allow Incyte to develop future combination regimens that prove more differentiated.

We forecast research and development expenses will remain elevated during our 10-year forecast period, averaging 41%, as Incyte continues to invest in its pipeline to help offset the impact of Jakafi’s upcoming patent loss. Our no-moat rating is supported by these concerns as any missteps in commercial execution, clinical trial setbacks, or regulatory delays will negatively impact the company, as Jakafi's sales will be eroded by generic competition in a few years.

Incyte's Jakafi is the first FDA-approved treatment for a rare blood disorder known as myelofibrosis, giving it strong pricing power and market penetration.

Jakafi's label expansion and Opzelura's launch in dermatology provide near-term catalysts for the firm.

Incyte's broad array of pipeline oncology and autoimmune programs gives the firm a larger margin for error.

Several competing myelofibrosis therapies are entering the market and could upend Incyte's monopoly on the myelofibrosis market.

Topical and oral dermatology competitors are launching in several of Opzelura's potential indications, creating a competitive marketplace.

The historical failure of Incyte's IDO inhibitor (melanoma) and discontinuation of several early-stage oncology programs could point to productivity issues in this area for the firm.