Incyte (INCY)
Incyte doesn’t excite us. Its weak sales growth and declining returns on capital show its demand and profits are shrinking.― StockStory Analyst Team
1. News
2. Summary
Why Incyte Is Not Exciting
Founded in 1991 and evolving from a genomics research firm to a commercial-stage drug developer, Incyte (NASDAQ:INCY) is a biopharmaceutical company that discovers, develops, and commercializes proprietary therapeutics for cancer and inflammatory diseases.
- A bright spot is that its market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
Incyte doesn’t meet our quality criteria. There are superior stocks for sale in the market.
Why There Are Better Opportunities Than Incyte
Incyte’s stock price of $64.81 implies a valuation ratio of 10.9x forward P/E. Yes, this valuation multiple is lower than that of other healthcare peers, but we’ll remind you that you often get what you pay for.
Cheap stocks can look like a great deal at first glance, but they can be value traps. They often have less earnings power, meaning there is more reliance on a re-rating to generate good returns - an unlikely scenario for low-quality companies.
3. Incyte (INCY) Research Report: Q1 CY2025 Update
Biopharmaceutical company Incyte Corporation (NASDAQ:INCY) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 19.5% year on year to $1.05 billion. Its non-GAAP profit of $1.16 per share was 10.6% above analysts’ consensus estimates.
Incyte (INCY) Q1 CY2025 Highlights:
- Revenue: $1.05 billion vs analyst estimates of $988.8 million (19.5% year-on-year growth, 6.5% beat)
- Adjusted EPS: $1.16 vs analyst estimates of $1.05 (10.6% beat)
- "The double-digit revenue growth in the first quarter driven by the continued growth of Jakafi and Opzelura and the recent launch of Niktimvo, puts us on track to achieve our full year objectives"
- Operating Margin: 19.5%, up from 10.4% in the same quarter last year
- Market Capitalization: $11.52 billion
Company Overview
Founded in 1991 and evolving from a genomics research firm to a commercial-stage drug developer, Incyte (NASDAQ:INCY) is a biopharmaceutical company that discovers, develops, and commercializes proprietary therapeutics for cancer and inflammatory diseases.
Incyte's portfolio is organized into two main therapeutic areas: Hematology/Oncology and Inflammation and Autoimmunity (IAI). The company's flagship product is JAKAFI (ruxolitinib), an oral JAK1 and JAK2 inhibitor approved for several blood disorders including myelofibrosis, polycythemia vera, and graft-versus-host disease. This drug represents a significant revenue source for the company and was the first FDA-approved JAK inhibitor for any indication.
Beyond JAKAFI, Incyte markets several other oncology products including MONJUVI/MINJUVI (tafasitamab) for diffuse large B-cell lymphoma, PEMAZYRE (pemigatinib) for cholangiocarcinoma and myeloid/lymphoid neoplasms, ZYNYZ (retifanlimab) for Merkel cell carcinoma, and NIKTIMVO (axatilimab) for chronic graft-versus-host disease. In dermatology, the company sells OPZELURA, a topical formulation of ruxolitinib approved for atopic dermatitis and vitiligo.
Incyte employs a dual business model that combines internal drug discovery with strategic collaborations. The company maintains partnerships with pharmaceutical companies like Novartis, which markets ruxolitinib outside the US as JAKAVI, and Eli Lilly, which commercializes baricitinib (OLUMIANT) globally for conditions including rheumatoid arthritis and alopecia areata.
Research and development remain central to Incyte's strategy, with a robust pipeline targeting various cancers and inflammatory conditions. The company is exploring novel compounds such as INCB123667, a selective CDK2 inhibitor showing promise in certain cancer types, and povorcitinib, an oral JAK1 inhibitor being evaluated for multiple dermatological conditions.
Incyte distributes its medications primarily through specialty pharmacy providers and wholesalers in the United States, with similar distribution networks established internationally. The company has built marketing, medical, and operational infrastructure both domestically and abroad to support commercialization of its growing product portfolio.
4. Immuno-Oncology
Over the next few years, immuno-oncology companies, which harness the immune system to fight illnesses such as cancer, faces strong tailwinds from advancements in precision medicine (including the use of AI to improve hit rates) and growing demand for treatments targeting rare diseases. However, headwinds such as rising scrutiny over drug pricing, regulatory unknowns, and competition from larger, more resourced pharmaceutical companies could weigh on growth.
Incyte's competitors in the oncology and hematology space include Novartis (NYSE:NVS), Bristol Myers Squibb (NYSE:BMY), and AbbVie (NYSE:ABBV). In the dermatology and inflammation markets, the company competes with Pfizer (NYSE:PFE), Eli Lilly (NYSE:LLY), AbbVie's Allergan, and Regeneron Pharmaceuticals (NASDAQ:REGN).
5. Economies of Scale
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With $4.41 billion in revenue over the past 12 months, Incyte has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.
6. Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Incyte grew its sales at a solid 14.6% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers.
Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Incyte’s annualized revenue growth of 12.8% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. 
This quarter, Incyte reported year-on-year revenue growth of 19.5%, and its $1.05 billion of revenue exceeded Wall Street’s estimates by 6.5%.
Looking ahead, sell-side analysts expect revenue to grow 8.3% over the next 12 months, a deceleration versus the last two years. Still, this projection is healthy and suggests the market sees success for its products and services.
7. Operating Margin
Incyte has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 14%, higher than the broader healthcare sector.
Looking at the trend in its profitability, Incyte’s operating margin decreased by 14.5 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 10.1 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.
In Q1, Incyte generated an operating profit margin of 19.5%, up 9.1 percentage points year on year. This increase was a welcome development and shows it was more efficient.
8. Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Incyte’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.
In Q1, Incyte reported EPS at $1.16, up from $0.58 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Incyte’s full-year EPS of $1.84 to grow 220%.
9. Cash Is King
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Incyte has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 15.7% over the last five years, quite impressive for a healthcare business.
Taking a step back, we can see that Incyte’s margin dropped by 18.4 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.
10. Return on Invested Capital (ROIC)
EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Although Incyte hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 35.2%, splendid for a healthcare business.
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Incyte’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
11. Balance Sheet Assessment
One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.
Incyte is a profitable, well-capitalized company with $2.41 billion of cash and $37.12 million of debt on its balance sheet. This $2.37 billion net cash position is 20.3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.
12. Key Takeaways from Incyte’s Q1 Results
We were impressed by how significantly Incyte blew past analysts’ revenue expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock remained flat at $59.52 immediately after reporting.
13. Is Now The Time To Buy Incyte?
Updated: May 22, 2025 at 11:46 PM EDT
The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Incyte.
Incyte doesn’t top our investment wishlist, but we understand that it’s not a bad business. First off, its revenue growth was solid over the last five years. And while Incyte’s diminishing returns show management's prior bets haven't worked out, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders.
Incyte’s P/E ratio based on the next 12 months is 10.9x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.
Wall Street analysts have a consensus one-year price target of $73.84 on the company (compared to the current share price of $64.81).
Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.
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