Poor old Incyte Corporation (INCY) never seems to catch a break.
The drug developer has tried and failed to diversify its product portfolio away from the blockbuster Jakafi over the years, but nearly every attempt has been accompanied by a high-profile failure. Shares have delivered a negative return in the last five years and have remained relatively flat for much of that span.
The latest focus on treating vitiligo could finally turn around the company's fortunes. The FDA recently approved Opzelura, a cream that uses the same active pharmaceutical ingredient (API) as Jakafi, to help individuals repigment skin lesions. Vitiligo is characterized by patches of skin that lack pigmentation, which causes significant quality of life challenges for many people.
A recent acquisition of a small start-up suggests Incyte might be attempting to build an empire in vitiligo and dermatology broadly. It could be just the jolt the stock needs to leave the doldrums.
A Strong Business That's Only Getting Stronger
Investors can't feel too bad for Incyte. The business is on pace to generate over $3 billion in full-year 2022 revenue, over $600 million in operating income, and nearly $800 million in cash from operations. It may be considered a one-trick pony, but it's a very strong business.
The one-trick pony label doesn't quite fit anymore. The lion's share of revenue comes from Jakafi, but Incyte generates product revenue from five products spread across oncology, hematology, and dermatology indications. That includes Opzelura, which could exit 2023 as the company's second-leading product ranked by quarterly revenue. Many analysts expect the dermatology product to reach peak annual sales near $1 billion generated from atopic dermatitis and vitiligo indications.
The high expectations can be chalked up to a couple of unique factors. First, Opzelura is the only FDA-approved disease-altering vitiligo treatment. Patients and doctors alike have been very dissatisfied by the lack of effective treatments, so uptake of Incyte's topical cream is expected to be swift. Second, repigmentation with the cream isn't permanent. Individuals must apply Opzelura continuously to maintain results. That inconvenient fact, as well as the lack of competition, suggests revenue will remain healthy.
These inconveniences and the massive, underserved opportunity help to make the recent acquisition of a new vitiligo drug candidate pretty intriguing.
Could This Be a Longer-Lasting Vitiligo Treatment?
In early October 2022, Incyte announced the acquisition of Villaris Therapeutics for $70 million upfront and potential long-term payouts of up to $1.36 billion. The start-up is developing a monoclonal antibody drug that blocks the immune cells responsible for the depigmentation associated with vitiligo. Repigmentation could last much longer than the topical cream, providing added convenience for patients.
The acquired drug candidate, auremolimab, isn't expected to begin clinical trials until 2023. That puts it relatively far behind a similar drug candidate from Amgen (AMGN), which is expected to report results from a phase 2 study this month.
That doesn't necessarily lessen the opportunity for Incyte. It will be the only drug developer with commercial infrastructure dedicated to vitiligo treatments, which could become a competitive advantage that helps make up for delayed entry into the clinic. It's also important to note that this class of drugs could be developed for other autoimmune disorders, such as celiac disease. That provides additional upside for the recent acquisition.
A One-Trick Pony No Longer
Incyte has long struggled to diversify revenue away from Jakafi. However, the company made significant strides in 2022 with the approval of Opzelura in vitiligo and its continued ramp in atopic dermatitis. The dermatology cream should easily eclipse $100 million in product revenue during 2023, which would be its first full year on the market for vitiligo.
Continuing to build commercial infrastructure in dermatology markets, especially to support the only FDA-approved vitiligo treatment, could provide a significant long-term advantage for Incyte. That's especially true if the recent acquisition of Villaris Therapeutics plays out successfully in the coming years.
