Incyte Corporation

Date: May 11, 2024.

Company’s Overview

Incyte Corporation (INCY) is a global force in the fight against cancer and other severe diseases. They discover, develop, manufacture, and market innovative therapies, collaborating with researchers worldwide to bring these treatments from labs to patients in need.

Competition

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

Related Risks

Incyte Corporation fights cancer globally but faces hurdles despite their progress. Developing new drugs is risky, with a high chance of failure and delays. The growing number of biopharmaceutical companies developing cancer treatments intensifies competition and threatens Incyte’s market share. Strict regulations can delay new drug approvals and limit patient access. Expiring patents on existing drugs open the door to generic competition, eroding Incyte’s revenue. Their reliance on partnerships for research and development exposes them to partner risk and limits control over the drug development process. To stay ahead, Incyte needs a strong R&D pipeline, strategic partnerships, and a diversified drug portfolio.

Financial Performance

Company’s Revenues

Revenues from 2021 to 2023:

• Incyte annual revenue for 2023 was $3.696B, a 8.87% increase from 2022.
• Incyte annual revenue for 2022 was $3.395B, a 13.67% increase from 2021.
• Incyte annual revenue for 2021 was $2.986B, a 11.98% increase from 2020.

The yearly revenue from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s Net Income

Net Income from 2021 to 2023:

• Incyte annual net income for 2023 was $0.598B, a 75.42% increase from 2022.
• Incyte annual net income for 2022 was $0.341B, a 64.09% decline from 2021.
• Incyte annual net income for 2021 was $0.949B, a 420.79% decline from 2020.

The yearly net income from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s EPS

EPS from 2021 to 2023:

• Incyte 2023 annual EPS was $2.65, a 74.34% increase from 2022.
• Incyte 2022 annual EPS was $1.52, a 64.4% decline from 2021.
• Incyte 2021 annual EPS was $4.27, a 413.97% decline from 2020.

Company’s Free Cash Flow

Free Cash Flow from 2021 to 2023:

• Incyte annual free cash flow for 2023 was $0.464B, a 47.99% decline from 2022.
• Incyte annual free cash flow for 2022 was $0.892B, a 56.93% increase from 2021.
• Incyte annual free cash flow for 2021 was $0.568B, a 282.22% decline from 2020.

The yearly free cash flow from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Shares Outstanding

INCY does not have any share repurchase program in place.

The Company overall has increased its shares outstanding by almost 133% from 2009.

Financial Strength

Incyte Corporation’s financial strength is a positive sign. They boast a very healthy asset-to-liability ratio of 4.26. This means for every $1 they owe in liabilities, they have $4.26 in assets, providing a significant buffer for unforeseen costs or investments in new drug development.

Further bolstering their financial position is their impressive current ratio of 3.75. This metric indicates ample resources to cover their short-term debts (due within a year) using short-term assets (cash, receivables).

The fact that they have net debt of -$3.6 billion (meaning they have more cash than debt) strengthens their financial position even further. This financial flexibility allows them to invest in research and development, make strategic acquisitions, and weather market fluctuations with greater confidence.

Valuation

Based on the analysis performed, INCY’s price is undervalued, showing a fair price of $62 (or almost 16% potential). As key metrics, we considered 10% Required Rate of Return (RRR) and 20% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 11 buy, 1 overweight, 11 hold, 0 underweight and 0 sell ratings. The consensus rating leans toward overweight.

Incyte Corporation presents a compelling case for growth-oriented investors, boasting impressive financial metrics despite operating in a volatile industry. Their stellar financial health is evident in a high asset-to-liability ratio (4.26), exceptional liquidity ratio (3.75), and negative net debt (-$3.6 billion). This financial strength allows them to invest aggressively in research and development, a crucial factor in this fast-paced industry.

However, some drawbacks exist. The significant increase in outstanding shares (133% since 2009) can dilute shareholder value, and competition is fierce. Additionally, their net income and free cash flow have fluctuated in recent years, which is somewhat expected for a growth company in a volatile sector.

Incyte is undervalued compared to the industry, with a P/E ratio of 19.75 versus a median of 27.32. Their profitability is strong, with a double-digit 10-year CAGR for both revenue (21.88%) and EPS (16.81%). They also outperform the industry in gross margin (49% vs 46.76%) and net margin (16.17% vs 3.79%). An impressive return on invested capital (ROIC) of 19.25% further highlights their efficient use of resources.

In conclusion, Incyte offers a unique blend of impressive financial strength, strong profitability, and an undervalued stock price. While competition and share dilution are concerns, their growth trajectory and healthy financials are significant positives. Investors seeking a high-risk, high-reward opportunity in the promising cancer treatment space should keep Incyte on their radar.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.